Fiscal consolidation is key to growth

We have been given a balanced survey of the past year and a useful guide to what needs to be done in the years ahead to convert India from a mixed-economy welfare state to a robust market economy, says Nitin Desai.

This year's Economic Survey is an assessment by the National Democratic Alliance on the policies of the United Progressive Alliance.

It speaks well of the professionalism of the economic division that the assessment is balanced and fair-minded.

It seeks credit for the sharp decline in the current account deficit and, perhaps with less justification, for the fall in the budget deficit.

It correctly draws attention to the sharp decline in private investment as the key issue that needs to be addressed to revive growth.

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Here it does not overpromise and sees seven-eight per cent growth returning only after the next financial year, if all goes well.  

One message that comes across loud and clear is the need for fiscal consolidation.

The survey speaks of the need for a new Fiscal Responsibility Act with stronger accountability and penalty mechanisms. In the same vein, it talks of the need for containing subsidies and moving from price subsidies to income support.

These are valuable suggestions and one hopes the Budget will make a start on that.

The message on inflation is still demand-side management though the survey does talk about freeing up agro-marketing.  

The survey carries another strong message and that is of freeing enterprises to pursue growth, with many suggestions about regulatory reform and transparency and on factor market reforms for land, labour and capital.

The survey recognises this as a medium-term possibility but suggests the effects on domestic and foreign confidence of clear announcements in this regard can have a more immediate impact.

Finance sector reform is very much within the remit of the finance ministry and we have a road map for this in several recent reports.

 All in all, we have been given a balanced survey of the past year and a useful guide to what needs to be done in the years ahead to convert India from a mixed-economy welfare state to a robust market economy. 

Please click here for the Complete Coverage of Budget 2014 -15