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Issues and Priorities


Macroeconomic Overview
Money and Prices
Fiscal Developments
External Sector
Issues and Priorities


Issues and Priorities

The sharp slow down in GDP and export growth following three years of high growth in each case, are two central areas of concern. The level of concern regarding the fiscal deficit and infrastructure problems continues to rise with each passing year. Higher growth is the best antidote for removing mass poverty and unemployment, and for generating revenues needed to supply public goods and other vital government services. Therefore, it is imperative to put back the economy on a higher growth path of the order 7 to 8 per cent per annum. This would necessitate raising of our savings rate to about 30 per cent of GDP through a reduction of government dissavings, an improvement in the performance of non-traded infrastructure (energy, transport and communications) and restoration of export growth to respectable levels.
The slippage on the fiscal front during 1997-98 is a cause of concern.
Our earlier experience shows that high levels of government expenditure nd fiscal deficits can also put pressure on the current account deficit in the balance of payments.
States have also to share the responsibility of fiscal consolidation and prudence in a federal polity.
The banking system has to be reformed so that interest rates come done due 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.
Inflationary pressures tend to build up either on account of supply side shortfalls in primary products, which later get reflected in the manufacturing sector or due to pressures on the demand side. The year 1998-99 may require special efforts at supply management in order to offset the possible shortfall in food-grains, sugar and cotton production.
The pace of industrial growth and investment has slackened markedly since the middle of 1996-97 for a variety of reasons. On the policy side, measures should embrace a broad array and include: steps to boost export growth, to revive the primary capital market, to encourage higher private and public investment to 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.
While there has been substantial progress with delicencing industry and foreign trade, the "controls mind-set" remains influential and the "inspector raj" continues to flourish. Fresh initiatives are necessary to reduce the role of these factors in industry, agriculture, trade, infrastructure, finance and social services in order to unleash the productive energies and capacities of economic agents in all these areas. At the same time, new emphasis must be accorded to improve rating and certification systems, self-regulatory organisations and (in areas of natural monopoly such as some infrastructure services) independent regulatory authorities.
As we approach the beginning of the twenty first century, the shortcomings in our social sectors - such as education, health, water supply and sanitation, housing - in relation to both our own aspirations as well as performance levels achieved by other Asian countries becomes increasingly stark and unacceptable.

The ongoing economic reform process should be re-appraised and revitalised to give the entire national development effort a more humane face. The eradication of poverty and unemployment must be the abiding goal of our development policies and programmes. The achievement of this goal will require sustained and rapid economic growth combined with well functioning public programmes for social services, rural development and employment generation to provide an effective safety net for all those millions at the margins of the growth process.

Postscript : Following the testing of nuclear devices by India in the second week of May 1998, some industrialised countries have reacted negatively in the field of economic relations. As of mid-May (when this document goes for printing), it is too early to assess the implications of these reactions for the short and medium-term development prospects of the Indian economy. One thing however is clear : to the extent to which these reactions render the external economic environment less friendly, to that extent, it becomes more urgent to implement the policy decisions necessary to ensure macroeconomic stability and rapid and sustainable economic growth.


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