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Re: Economic Survey for 1997-98
Are there any segments of this survey we disagree on? I couldnt find
any other than some questionable sources and motives that the group
may have (this is only if I were to be a skeptic and didnt believe
anyone!). Then a good question to ask ourselves is: are we reinventing
the wheel? Or is it missing something?
> Economic survey for 1997-98
> The economic survey for 1997-98 calls for stepping up foreign investment, restoring
> confidence in the capital market and reversing the sharp slowdown in the GDP and
> export growth accompanied by a marked deceleration in industrial growth. At the
> same time, it says that the rising fiscal deficit and infrastructure problems are
> areas of serious concern. The survey tabled in Parliament on Thursday says fresh
> initiatives are necessary to do away with the ‘inspector raj’ and reduce the role of
> controls in industry, agriculture, trade, infrastructure, finance and social services in
> order to unleash the productive energies and capacities of economic agents.
> According to the survey, the climate of industrial investment and growth can be
> greatly enhanced through bold policy initiatives.
> It calls for further measures at bringing back small investors to the capital market
> by raising the transparency and accountability of listed companies as well as that
> of capital market intermediaries. It suggests greater procedural simplifications in
> the area of foreign direct investment (FDI). There remains considerable potential for
> higher FDI flows. However, India needs to maintain a positive stance towards FDI in
> order to strengthen the balance of payments and to garner more foreign savings to
> support the investment needs of the economy. Giving its comments on the fact
> that some industrialised countries have acted negatively in the field of economic
> relations following the nuclear tests by India, the survey says it becomes more
> urgent to implement the policy decisions necessary to ensure macro-economic
> stability and rapid sustainable economic growth.
> The survey says the share of FDI in total flows must be progressively raised as it is
> the most stable form of capital flow. FDI also has an additional benefit of
> introducing new technology, techniques and practices into the economy. It notes
> that external commercial borrowings, foreign institutional investment and FDI
> norms and procedures have been substantially liberalised in the past few years to
> facilitate the flow of funds for production and investment. The survey says it is
> essential to maintain a market-responsive exchange rate determined by
> fundamental demand and supply factors, while containing excessive short-term
> volatility. The recent market movement in the rupee-dollar rate, however, corrects a
> part of the appreciation in the real effective exchange rate which has occurred over
> the last two years. The survey says the ongoing economic reforms should be
> reappraised and revitalised.
> The eradication of poverty and unemployment must be the abiding goal of
> development policies and programmes. The achievement of this goal will require
> sustained and rapid economic growth combined with functioning public
> programmes for social services, rural development and employment generation to
> provide an effective safety net for all those millions at the margin of the growth
> process. The survey calls for putting the economy on a higher growth path of the
> order of seven to eight per cent per annum. This would necessitate raising the
> savings rate to about 30 per cent of the GDP through a reduction in government
> dissaving, an improvement in the performance of non-traded infrastructure (energy,
> transport and communications) and restoring the export growth to reasonable
> The survey notes that the financial crisis in South-east Asia has re-emphasised the
> significant challenges and risks involved in moving to free international capital
> markets. The lessons of the crisis demonstrates that capital account liberalisation
> should be carried out in a phased and deliberate way so as to minimise the risks of
> disruption during a period in which all participants learn to deal with new challenges
> and uncertainties. The survey says the time has come to remove numerous
> controls and impediments to the setting up and functioning of the derivative
> markets in India.
> Similarly, constraints on hedging of exposure on international markets must be
> phased out, as this has the additional benefit of providing a hedge against
> systemic risk. Modern, well-regulated, forward and future markets are essential for
> efficient management of risk. Without such markets, Indian firms and institutions
> are handicapped vis-a-vis their competitors across the world. Unhedging foreign
> exchange exposure, if widespread, can also snowball into system failure through a
> vicious cycle of technical bankruptcy.
> The economic survey says inefficient state taxes can limit the benefit accruing
> from reform of central taxes. Measures need to be taken to induce banks to step
> up delivery of non-food credit to medium and small industrial units. The banking
> system has to be reformed so that interest rates come down to competitive
> pressures, greater efficiency and lower implicit taxation of the banking sector.
> Access of companies to debt markets also needs to be improved by deepening
> and widening these markets. It calls for measures to restore confidence in the
> capital market to make it a stronger instrument for mobilising funds.
> Efforts must continue to modernise and improve the regulatory and payments
> system to get them on par with developed countries. To keep prices under check,
> the survey says, the financial year 1998-99 would require special efforts at supply
> management in order to offset the possible shortfall in food grains, sugar and
> cotton prices. The survey says four to six per cent inflation rate could be regarded
> as an acceptable level of inflation for India at present. In 1997-98 the annual rate of
> increase in prices was confined to this range.
> Barring 1996-97 when food grains output peaked at 199.3 million tonnes, the
> growth in food grains output during 90’s has been just about 1.73 per cent per
> annum. The yield rates have reached a plateau in major wheat and rice growing
> areas. Hence attention would have to shift to those regions where production is
> well below average. Eastern Uttar Pradesh, Bihar and Orissa could be target areas
> where higher investments in rural infrastructure by way of improved water
> conservation and delivery systems, fertiliser use and credit availability should
> receive special focus. The survey says the pace of industrial growth and investment
> has slackened markedly since the middle of 1996-97 for a variety of reasons.
> Some of the factors are cyclical and can be expected to correct themselves.
> Others are the result of some of the policies followed in the past.
> On the policy side, therefore, measures should embrace a broad array and include
> steps to boost export growth, revive the primary capital market, encourage higher
> private and public investment, relieve infrastructure bottlenecks and boost demand
> for core industrial sectors, and fiscal and monetary policies aimed at moderating
> real rates of interest and ensuring adequate availability of productive capital to
> industry. Economic reforms play a vital role not only by directly stimulating higher
> productivity and efficiency, but also by keeping confidence high and boosting
> investment intentions of entrepreneurs. Reform of inappropriate policies,
> unproductive government programmes and inefficient public organisations and
> projects can generate hope and confidence in a more productive future.
> The survey says with the revival of economic growth, the demand for key
> infrastructure services such as power, telecom, railways, roads and ports, will
> press harder against existing supply constraints. The strategy to relieve
> infrastructure bottlenecks must encompass both creation of additional capacity in
> various sectors as well as initiatives to induce much higher capacity utilisation. The
> strategy must also encourage both private and public provision of infrastructure
> services in a competitive environment and with an appropriate and transparent
> regulatory framework, this broad approach calls for an acceleration of
> sector-specific reforms to tackle existing lacunae in the design and implementation
> of policies.
> To illustrate, the survey says, low capacity utilisation and high transmission and
> distribution losses, unrealistic tariff policies and non-commercial approaches of
> state electricity boards constrain both the levels of generation and distribution from
> the existing power network as well as the flow of fresh investment into this sector,
> the railways and postal services continue to suffer from substantial operational
> losses in their provision of subsidised service. In the case of railways, the heavy
> cross-subsidy of passenger traffic by freight traffic has led to a situation where
> India's comparative advantage in key sectors such as coal and steel has been
> severely eroded. Indian ports suffer from problems of outdated organisational
> modes and low productivity of labour and equipment in comparison to many other
> Asian ports. The level of investment in new roads and the quality of maintenance of
> existing networks is far below the requirement. All these issues and problems need
> to be tackled urgently.
> The survey says the shortcomings of social sectors -- such as education, health,
> water supply, sanitation and housing -- in relation to both the country's aspirations
> as well as performance levels achieved by other Asian countries, becomes
> increasingly stark and unacceptable. The constitutional provision of making primary
> education free and compulsory up to the fifth standard should be implemented as
> soon as feasible. The provision of free education for girls will not only empower
> women but also help in controlling population growth and improving the quality of
> life of children.
> The achievement of ‘health for all’ requires greater focus on epidemic diseases and
> better water supply, sewage and sanitation systems. Government must clearly
> play a leading role in ensuring universal provision of basic minimum services.
> However, policies should be designed to encourage private provision of services as
> well. It is noteworthy, the survey says, Kerala's often commended achievements in
> the field of education and literacy are substantially dependent on the long history of
> private schools at all levels.
> The survey says Indian industry is presently passing through a difficult phase.
> Industrial growth, which decelerated to 7.1 per cent in 1996-97 has further declined
> in 1997-98. The manufacturing sector is performing poorly leading to further
> deterioration in industrial growth. Better performance of mining and electricity
> generation in 1997-98 have not been able to bring about a turn around. Certain
> factors inhibiting industrial growth in 1996-97, were seen to persist in 1997-98, as
> well. Notable among these are the subdued conditions in the primary and capital
> markets, slow export growth and a somewhat uncertain economic environment.
> However, the quantum of assistance sanctioned by all India financial institutions
> (AIFIs) during 1997-98, there has been a significant increase in the sanction of
> assistance by AIFIs. It is expected that materialisation of these sanctions will lead
> to much greater flow of funds into the industry in the coming period. With
> manufacturing sector performing below expectations and excess capacity having
> been built in certain key segments of industry (such as cement and automobiles),
> overall industrial growth in 1997-98 is expected to be lower than the previous year.
> The survey says capital account convertibility presupposes a sound banking
> system capable of handling risks inherent in gloabilisation. Further steps aimed at
> developing the domestic debt market should be designed to facilitate the flow of
> contractual savings for infrastructure financing. The survey says gloomy trends in
> primary capital market continued throughout 1997-98. Though the measures
> designed to improve the performance of the financial sector have facilitated
> resource mobilisation through a variety of instruments, there has been a steady
> decline in resource mobilisation from primary market which was only Rs 4,570
> crore as against Rs 14,276 crore and Rs 20,804 crore in 1996-97 and 1995-96
> respectively. This reflects erosion of confidence, especially of retail investors. It
> observes that poor quality issues in the past deprived many retail investors of their
> Most retail investors have, therefore, avoided the capital market. This has adversely
> affected the ability of private sector companies to raise capital. With the stringent
> eligibility criteria for new issues prescribed by the securities and exchange board of
> India (SEBI), the quality of issues should conform to investors expectations.
> However, given the loss of confidence of the Indian retail investor in the primary
> market, there is a need to look at investors' perceptions. The access of investors to
> corporate information is limited and their confidence in available information is
> weak. This problem is more serious in the case of retail investors. This calls for
> further study by the regulatory authority and research institutions.
> The survey says the secondary market is influenced by foreign institutional
> investors (FIIs). The recent South Asian experience and the response of FIIs to the
> depreciation of the rupee by FIIs net sales in the recent past, points to the
> vulnerability of the secondary market to FIIs behaviour. It is therefore necessary to
> regain the confidence of domestic investors, including retail investors. Deliver
> based investment which may be considered as true business investment, has
> suffered due to problems connected with bad deliveries, taken and stolen securities
> and intermediaries. The decision by SEBI to introduce demat trading in a phased
> manner augurs well for delivery-based business and can, therefore, be expected to
> boost investor confidence in a big way.
> Overall economic growth of GDP has decelerated significantly to five per cent in
> 1997-98 from 7.5 per cent in 1996-97. The drop in GDP growth in 1997-98 is
> attributable mainly to a sharp fall in the growth rate in agriculture and a
> deceleration in the growth of industry. The service sector posted a robust growth of
> 8.9 per cent in 1997-98. At a more fundamental level, the slowdown in growth can
> be traced to a combination of underlying supply factors and temporary demand
> factors. Agricultural production in 1997-98 is likely to be lower than last year's
> record output, especially of foodgrains and commercial crops. Food grain output
> will, however, be higher than in 1995-96. The food grains production in 1997-98 is
> expected to be 194.1 million tonnes compared with 199.3 million tonnes in
> 1996-97, representing a decline of 2.6 per cent. Of this rice will constitute 83.5
> million tonnes, wheat 66.4 million tonnes and coarse cereals and pulses (together)
> 44.2 million tonnes.
> Production of wheat, coarse cereals and pulses is expected to decline by 4.2 per
> cent, 9.1 per cent and 9.5 per cent respectively. One reason for the setback is late
> wheat sowing due to inclement weather during the rabi season. Among the food
> grains only rice is expected to post a positive growth of 2.7 per cent during
> 1997-98. Annual growth rate of food grains production in the 90’s has been 1.73 per
> cent -- lower than in earlier years. In case of commercial crops the production of
> oilseeds, sugarcane and cotton is expected to decline by 5.1 per cent, 6.2 per
> cent and 19.9 per cent respectively in 1997-98.
> The non-traded infrastructure services sector comprising electricity, gas and water,
> other transport and communication, is expected to maintain a higher growth than
> the overall growth rate of GDP. It grew by 7.9 per cent in 1996-97 and is estimated
> to have grown by 7.5 per cent in 1997-98. The process of fiscal consolidation
> received a setback during 1997-98 with the central government fiscal deficit (revised
> estimates) reaching 6.1 per cent of GDP as against the budget target of 4.5 per
> cent. The primary deficit was also 1.7 per cent points of GDP higher than
> budgeted. The deterioration in the fiscal deficit was due primarily to a tax revenue
> shortfall of Rs 14,236 crore (net to centre) and a shortfall of Rs 3,894 crore in
> disinvestment receipts. Both customs and excise revenues were well below the
> budget estimates, the former on account of both lower volume and unit price of
> imports, and the latter because of unexpected low industrial growth.
> The survey says, the continued sluggishness in export growth for the second year
> in succession in 1997-98 was a cause of concern. Export growth in US dollar
> terms decelerated to 5.3 per cent in 1996-97 and to 2.6 per cent (provisional) in
> 1997-98, after three successive years of increase, ranging from 18 to 21 per cent
> per annum. The slowdown in export performance reflects a range of factors of
> domestic and foreign origins. The two most important factors were probably the
> sharp decline in the growth of value (US dollar) of world trade in 1996 and 1997,
> and the appreciation of rupee vis-a-vis the currencies of India's major trading
> partners and competitors.
> The real effective exchange rate of the rupee has shown a gradual appreciating the
> trend over the last few years, because of the appreciation of the of US dollar
> against other major currencies and low international inflation rates relative to India.
> The dramatic depreciation of some South Asian currencies during 1997 has also
> been a contributory factor to export sluggishness. Other external factors included
> the decline in export prices of some major items of manufactured goods, and
> tighter requirements of quality, standards, testing and labelling in the major trading
> partner countries for some major items of India's exports. Other domestic factors
> are the slowdown in growth of power, tighter supply conditions in the domestic
> market for agricultural items, especially rice and wheat, tightening of domestic
> environmental regulations, and infrastructure bottlenecks.
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