The economic survey report came out on friday. There were special articles on this report in all the leading business newspapers. So what is special about this survey?.
It is important because it analyses the macro economic situation in the country and suggests the areas that we need to work on.
While the economic survey predicts that the indian economy will grow at a healthy 9% in 2011-12 as compared to the 8.6% growth in the current fiscal. While the conditions look good, there are some areas of concern - most of important of which are inflation, current account deficit and steady declines in the FDIs.
Let us look at each of these - First inflation. Although the government rolls out a lot of subsidies (food,kerosene) etc, the problem lies with the public distribution system. The survey says that 40-55% of the total amount set aside for subsidies is diverted by the ration shops. This means the subsidies dont actually reach the targeted audience. Please see my previous post on how the survey argues to do away with the assumption that all people are morally flawless. Another solution to improve the agricultural marketing is to allow FDIs in multi brand retails. Most economists also seem to be on concurrence on this - most notable of them being Mr.Kausik basu, the economic advisor to FM. This will help in improving the supply chain logistics in procuring the food grains from farmers, improving the agricultural returns for the farmers thereby boosting further production. The need for a second green revolution would not be more relevant than at any other point of time.
The government should focus on direct subsidies thereby eliminating the incentives for middle-men(ration shop keeper etc) by introducing smart cards. The UID will also help this in a big way.
Secondly to bring down the fiscal deficit, the goverment must improve industrial production. The steep fall in the IIP figures are alarming,although some may argue that this is due to high base effect.
What is also required is financial consolidation - rolling back the export duty is expected in the union budget.
Another significant reform to improve the economy will be GST(Goods and Service Tax).Mr Adi Godrej has opined that this is the single most important reform for the government. The popular perception is that the GST will streamline the whole taxation process. The basic concept is that the tax is added at each stage of the manufacturing process based on the value addition. This helps in reducing tax evation. At some stage or other the product or service will get taxed. This GST system also removes redundant taxes thereyby removing the burden on the consumer. The prices of consumer goods are expected to come down by 5-7%. This means higher consumption leading to higher production from a business point of view. Mr.Godrej argues that the GST has the potential to increase the GDP by 1.5 - 2%. Astronishing , is nt it?.
These are some suggestions laid out by the Economic survey, let us hope that the finance ministers heeds to some of these suggestions during the union budget being presented in the parliament right now!.
It is important because it analyses the macro economic situation in the country and suggests the areas that we need to work on.
While the economic survey predicts that the indian economy will grow at a healthy 9% in 2011-12 as compared to the 8.6% growth in the current fiscal. While the conditions look good, there are some areas of concern - most of important of which are inflation, current account deficit and steady declines in the FDIs.
Let us look at each of these - First inflation. Although the government rolls out a lot of subsidies (food,kerosene) etc, the problem lies with the public distribution system. The survey says that 40-55% of the total amount set aside for subsidies is diverted by the ration shops. This means the subsidies dont actually reach the targeted audience. Please see my previous post on how the survey argues to do away with the assumption that all people are morally flawless. Another solution to improve the agricultural marketing is to allow FDIs in multi brand retails. Most economists also seem to be on concurrence on this - most notable of them being Mr.Kausik basu, the economic advisor to FM. This will help in improving the supply chain logistics in procuring the food grains from farmers, improving the agricultural returns for the farmers thereby boosting further production. The need for a second green revolution would not be more relevant than at any other point of time.
The government should focus on direct subsidies thereby eliminating the incentives for middle-men(ration shop keeper etc) by introducing smart cards. The UID will also help this in a big way.
Secondly to bring down the fiscal deficit, the goverment must improve industrial production. The steep fall in the IIP figures are alarming,although some may argue that this is due to high base effect.
What is also required is financial consolidation - rolling back the export duty is expected in the union budget.
Another significant reform to improve the economy will be GST(Goods and Service Tax).Mr Adi Godrej has opined that this is the single most important reform for the government. The popular perception is that the GST will streamline the whole taxation process. The basic concept is that the tax is added at each stage of the manufacturing process based on the value addition. This helps in reducing tax evation. At some stage or other the product or service will get taxed. This GST system also removes redundant taxes thereyby removing the burden on the consumer. The prices of consumer goods are expected to come down by 5-7%. This means higher consumption leading to higher production from a business point of view. Mr.Godrej argues that the GST has the potential to increase the GDP by 1.5 - 2%. Astronishing , is nt it?.
These are some suggestions laid out by the Economic survey, let us hope that the finance ministers heeds to some of these suggestions during the union budget being presented in the parliament right now!.
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