Recommending an end to all cesses and surcharges on taxes, and free pricing of fertiliser and fuel ahead of the Union Budget for 2009-10, the Economic Survey suggested on Thursday aggressive disinvestment and financial sector reforms to bring the economy back to high growth track.
"Review and phasing out of surcharges, cesses and transaction taxes (such as commodities transaction tax, securities transaction tax and fringe benefit tax)," it said, prescribing possibly the boldest set of financial sector reforms and lifting of all restrictions on farm sector trade.
The survey, tabled in Parliament by Finance Minister Pranab Mukherjee, also sought reduced role for government and end of state monopoly in areas like Railways, coal and nuclear power while seeking up to 49 per cent Foreign Direct Investment in defence and insurance.
Asking for a disinvestment target of minimum Rs 25,000 crore (Rs 250 billion) annually, the Survey said that every single public sector enterprise should be listed while loss making undertakings, that are beyond revival, should be auctioned.
The hitherto politically sensitive areas of FDI in multi-brand retailing, also caught attention of the the Survey, which recommended foreign investment in the area beginning with food.
A day after the government raised the prices of petrol and diesel by Rs four and two, respectively, it said that fuel prices should be freed from government control.
Analysing the impact of the global financial crisis and the challenges, the Survey said: "The Indian economy has shock-absorbers that will facilitate early revival of the growth."
Noting that economy had slowed to 5.8 per cent in the second half of 2008-09, the Survey said economic resilience and necessary policy stimulus helped in achieving a growth of 6.7 per cent and hoped that the current fiscal could see and growth of 7 to 7.5 per cent.
Though there are indications that the economy may have weathered the worst of the downturn due to resilience and various policy measures, the situation 'warrants close watch on various economic indicators including impact of the economic stimulus and developments taking place in the international economy.'
Pointing out that fall-out of the global financial crisis has been palpable in the industry, trade and services sectors, it said the government would have to 'squarely address the short-term and long-term challenges' to achieve tangible progress and ensure that outlook remains firmly positive.
Suggesting bold economic reforms in various sectors to spur growth, the Survey said government should decontrol petrol and diesel prices, meaning that they be linked to global fuel prices.
Besides, it added, the government should also develop a policy response system and financial buffer for use when the diesel prices rise above $80 per barrel in the international market.
The Survey also underlined the need for reform of petroleum, fertiliser and food subsidies to reduce leakages and ensure that benefits reach the intended persons.
The Survey also advised the government to phase out kerosene subsidy by ensuring that 'every rural household (without electricity and LPG connection) has a solar cooker and solar lantern.'
On the taxation front, it also urged the government to introduce a new Income Tax Code, rationalise the Dividend Distribution Tax (DDT) and implement Goods and Services Tax by April 1, 2010.
As regards indirect taxes, it asked the government to review customs duty exemptions and move to a uniform duty structure.
The Survey also asked the government to auction 3G spectrum and make it "freely tradable with capital gains on spectrum to be taxed under the Income Tax Act."
On financial sector reforms, the Survey underlined the need for raising foreign direct investment (FDI) cap in insurance sector to 49 per cent from 26 currently. A bill to raise FDI in insurance sector to 49 per cent is currently pending in the Rajya Sabha.
The Survey wanted the government to consider 100 per cent foreign investment in special category of insurance companies dealing with health and rural sector activities like agro-processing.
It also suggested that the government should pursue various pending bills like PFRDA Bill 2005, Forward Contracts (Regulation) Amendment Bill 2006 and the Insurance Laws (Amendment) Bill 2006.