A ROBUST ECONOMIC SCENARIO

D.C.Gupta*

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The Government is committed to achieving an accelerated, all-round growth with a wider distributive spread of national wealth and greater spending power in the hands of all our citizens. The strategy to enhance growth in all sectors of the economy along with a rapid and efficient development of the physical and social infrastructure is underpinned by efforts to eradicate poverty, improve incomes, generate employment and better the quality of life of all sections of the society.

The macroeconomic conditions define the context of the policy initiatives taken to achieve our developmental objectives. The severe drought suffered by the country last year, with the backdrop of a sluggish global economy and the unsettled geopolitical situation, had an impact on our economic growth in 2002-03. Since then, however, all major macroeconomic indicators have shown an improvement. The good monsoon this year should reverse the decline in the agricultural output of last year leading to a robust growth in this sector. A higher growth in agriculture will benefit other sectors of the economy as well. Inflation is now down to 4.6 per cent from a high of 5.5-6.5 per cent in the last two months of 2002-03. A broad-based growth of over 19 per cent in dollar terms in 2002-03, both in exports and in imports, also indicates a steady economic growth.

Thus, the country’s macroeconomic parameters are conductive to attaining the objective of enhanced and balanced growth with social and economic security for our citizens.

Commitment

The Prime Minister had announced the Government’s commitment to improve our national well-being by addressing the life-time concerns of our citizens on Independence Day, 2002. One year later, on the eve of Independence Day, 2003, an opportunity has come to highlight some of the recent initiatives taken by the Ministry of Finance to achieve this objective.

In his Budget speech for 2003-04, the Finance Minister had outlined various policy measures in the areas of housing, education, health, health insurance and welfare of the vulnerable sections, including senior citizens. Among the measures announced was the intention to launch two new schemes, viz., the Varishtha Pension Bima Yojana guaranteeing an assured annual return of 9 per cent per annum to the senior citizens and a community-based Universal Health Insurance Scheme offering health protection to the less advantaged citizens. Both these schemes are now operational.

Varishtha Pension Bima Yojana

Under the scheme, a citizen of 55 years and above can get an

assured return of 9 per cent per annum in the form of a monthly pension on a payment of a lump sum premium. The minimum and maximum monthly pensions under the scheme are Rs. 250 and Rs. 2000per month. The mode of payment of pension can be monthly, quarterly, half-yearly or yearly as opted. The pensioner can also avail of a loan upto 75 per cent of the total deposited premium after the policy has completed three years. In the event of the pensioner’s death, the purchase price will be returned to the nominee.

The scheme is subsidized by the Government. The difference between the actual yield earned by the LIC on the funds invested under the scheme and the assured return of 9 per cent will be reimbursed to the LIC annually by the Government.

Universal Health Insurance Scheme

The Universal Health Insurance Policy, at a premium ranging from Re. 1 to Rs. 2 per day, is available to groups of hundred or more families. The family under the scheme means the earning head, spouse and upto a maximum of three dependent children and dependent parents. The policy covers people from the age of 3 months to 65 years. It provides reimbursement of hospitalization expenses upto Rs. 30,000, a cover of Rs. 25,000 for death due to accident of the earning head of the family, and a disability cover if the earning head of the family is hospitalized due to an accident or illness @ of Rs. 50 per day of hospitalisation upto a maximum of 15 days after a waiting period of 3 days. To make the scheme affordable to families below the poverty line, the Government will provide a premium subsidy of Rs. 100 per family.

Income Security

The Government offers a basket of small savings schemes to meet the varying needs of different groups of small investors in rural and urban areas. These schemes provide risk-free and attractive returns with a number of tax concessions.

To protect the investors who had invested in the Unit Scheme-64 (US 64) and other assured return schemes of the Unit Trust of India(UTI), an amount of Rs. 2449 crore in 2002-03 and Rs. 6500 crore in 2003-04 have been allocated to enable the UTI to meet the shortfall between assured redemption prices and the net asset value (NAV) of these schemes.

Poverty Alleviation

As a result of the anti-poverty strategy followed over the years, the combined poverty ratio for rural and urban population has declined from nearly 55 per cent in 1973-74 to 27 per cent in 1999-2000. In absolute terms, the number of poor has declined from 321 million in 1973-74 to 260 million in 1999-2000, with about 75 per cent of these being in the rural areas. The Tenth Five Year Plan aims at achieving a combined poverty ratio of 19.3 per cent by 2007. Reforms that result in a sustained growth and employment are the durable means to achieve this target. However, there is also a scope for direct action through anti-poverty and employment generation programmes.

An additional allocation of Rs. 3650 crore has been provided for the scheme of Sampoorna Gramin Rojgar Yojana (SGRY), the total allocation for the scheme during the current financial year being Rs. 8137 crore. The objective of the scheme is to provide additional wage employment, creation of durable social and economic assets and infrastructure development in the rural areas.

Food Security

To protect the vulnerable sections of the society, the Government provides food subsidy to producers and consumers through price support and supply of foodgrains through the Public Distribution System (PDS) at below economic cost. The expenditure on food subsidy has increased more than 4 times from Rs. 5,001 crore in 1994-95 to an allocation of Rs. 27,800 crore in 2003-04.

With a view to minimising the cost of agricultural inputs, the Government also provides subsidy on fertilizers. The expenditure on fertilizer subsidy has more than doubled from Rs. 5769 crore in 1994-95 to an allocation of Rs. 12,720 crore in 2003-04.

After dismantling of the Administered Price Mechanism (APM), the Government is also providing subsidy on domestic LPG and kerosene supplied through PDS. The allocation has been increased from Rs. 4496 crore in 2002-03 to Rs. 6300 crore in 2003-04 for this purpose.

Public Sector Undertakings

The Government is following a programme of restructuring and disinvestment of selected public sector undertaking (PSUs) to improve their efficiency and productivity. In implementing this policy, a major concern has been that with the transfer of management into private hands, the interest of the employees should not suffer. To protect their interest, a specific provision has been included in the shareholder agreements, executed as a part of the strategic sale of Government equity, to ensure that there is no retrenchment at least for a period of one year after the disinvestment, and even thereafter, retrenchment will be possible only under the Voluntary Retirement Scheme (VRS) as applicable under the guidelines of the Department of Public Enterprises or the Voluntary Separation Scheme (VSS) prevailing in the company prior to disinvestment, whichever is more beneficial to the employee.

The Budget 2003-04 provides Rs. 453 crore for VRS/VSS payments in PSUs. An additional allocation of Rs. 537 crore has been provided for this purpose, increasing the total allocation on this count during the current year to Rs. 990 crore.

Fiscal Consolidation

For the economic growth to be sustainable, fiscal consolidation through revenue enhancement and expenditure rationalisation is essential.

In accordance with the Budget announcement, a system of cash management on a pilot basis has been introduced for the first time in nine major spending Ministries and Departments.

Pursuant to another Budget announcement, the Government offered a buy back of high coupon relatively illiquid Government securities from banks and financial institutions. The accepted buy back of nineteen securities amounting to Rs. 14,434 crore is expected to result in savings of Rs. 750 crore per annum in interest payments during the next two years.

The Government has also created a Fiscal Reform Facility encouraging the States to undertake Medium-Term Fiscal Reform Programmes to achieve fiscal consolidation and debt sustainability. An incentive fund of Rs. 10,607 crore has been earmarked over a period of five years to encourage all the 28 States to implement reforms. Under this Facility, Rs. 3154 crore was extended as Medium Term Loan for six fiscally stressed States to fund 66 per cent of their opening deficit for 2002-03. Further, to help the States to take advantage of the current low interest rates to bring down their debt service liability, the Government has also formulated a Debt Swap Scheme. The scheme enables the States to prepay expensive loans contracted from the Government of India in the past.

The Government has to carefully balance the need for speeding up growth with social justice while simultaneously ensuring fiscal consolidation. It has to judiciously manage competing priorities within limited resources and to ensure an efficient utilization of the available resources to attain the development objectives. The Government’s efforts in this regard are primarily guided by the overriding concern for the interests and well being of the citizens.(PIB Features)

*Finance Secretary