*TOICTM260210/ /14/K/1**TOICTM260210/ /14/Y/1**TOICTM260210/ /14/M/1**TOICTM260210/ /14/C/1*
14 TIMES NATION | ECONOMIC SURVEY 2009-10
* THE TIMES OF INDIA, MUMBAI
FRIDAY, FEBRUARY 26, 2010
The Mukherjee trilemma
Kolkata leads in
home price rise,
The Survey Seeks A Balance Between Money Supply And Growth Needs. But With The Indian B’lore sees crash
Economy On A Rebound And Forex Pouring In, Can Price Rise And Rupee Be Kept Under Check?
Team TOI dramatic re-rating of their
real estate market in the last
Neelabh
Team TOI terest rates to a level which
could lower demand. It says R
evival in housing prices decade and consequent rise
is sharper in Tier 2 in realty prices. They have
cities of India than in been the worst hit by the slow-
ith the global inflation is mainly due to sup- the big metros, though the lat- down with housing prices col-
W
economy ply side pressure and there- ter have seen appreciation in lapsing rather dramatically.
showing signs fore, needs to be managed bet- the value of their housing In Bangalore’s case the fall is
of a recovery, ter by augmenting supply. stock. While the slowdown a humungous 42%. For Hy-
the Economic ‘‘It would be incumbent on knocked the stuffing out of derabad the decline is around
Survey has raised concerns policy authorities not only to the residential housing mar- 35%. In these cities over-sup-
about the impact of foreign address inflationary expecta- ket in 2007, after a couple of ply exacerbated the matter.
capital inflows, indicating that tions but also monitor and en- painful years, prices are be- Realtors who built towers in
it may lead to overheating of sure that the growth in mon- ginning to look up in most the sky in the hope that the
the economy unless managed ey supply and credit to pro- cities, the exceptions being tech crowd would buy them
well. The survey has called for ductive sectors is at the en- Bangalore, Hyderabad, Jaipur as soon as they built them,
the need to manage capital in- visaged levels so that growth and Kochi. Of the 15 cities found themselves caught on
flows in various sectors, where prospects in the near to medi- covered by the National Hous- the wrong foot as a severe re-
FDI levels may be eased, so that um terms are sustained on an ing Banks index to track hous- cession in the US and Europe
it enhances economic growth even keel, without, at the same ing prices in the country hit their businesses.
without pushing up prices and time jeopardizing the price ‘RESIDEX’, 11 reported a Big cities with a better
exchange rates further. scenario,’’ it said. jump in prices in the first half business mix like Chennai,
The Survey said it would To manage supply side of 2009 from 2007 (base year). Mumbai and Delhi, which
be a matter of concern if in- pressure, the Survey said,
flows are in excess of the do- proper and timely assessment
mestic absorptive capacity, of the situation and preven- Realty Index: Topsy Turvy
which could lead to overheat- tive action become essential.
ing of the economy. With in- ‘‘For a large country like In-
Cities 2007 2008 2008 2009
Jan-June July-Dec Jan-June
terest rates at historic lows in dia, the scope for imports of
most advanced economies, the many commodities is limited.
Delhi 100 124 130 121
survey said, capital flows from Any decision to import food
these countries are finding items raises global prices Bengaluru 100 73 76 58
their way into fast growing which impacts domestic
Asian economies including In- prices as well, it said.
Mumbai 100 112 117 124
dia. RBI, in its Q3 review to Inflationary pressure can
Kolkata 100 114 140 159
the credit policy, had also ex- when a slowdown had gripped change rate of the Indian cur- the price rise and appreciation Similarly, a price rise is not ac- also derail the growth revival.
pressed concern over manag- the economy, foreign exchange rency appreciated by 3.23%. in rupee affect growth.’’ The ceptable as it affects the poor. Normally, RBI tightens money Bhopal 100 139 151 139
ing of excess dollar inflows. reserves had declined by $ 57.7 But the appreciation came at Survey said, ‘‘This can also be But at the same time, capital supply to contain inflation even
With the global financial billion to $ 252 billion. the cost of the competitiveness looked at as the impossible inflows are required to meet if it is because of supply side
Hyderabad 100 96 92 65
crisis contained for now, India The surge in capital in- of Indian exports. trinity dilemma of policy investment gaps from the do- constraints. The survey said
Faridabad 100 100 121 136
has seen huge capital inflows. flows during the current fi- Foreign inflows increase choice between price stabili- mestic resources. that as of now, the outlook for
Up to December 2009 in the nancial year has made rupee money supply in the system. ty, exchange rate stability and The Survey has not argued inflation is conditioned by sup-
Patna 100 103 100 107
current financial year, foreign appreciate around 7% against Therefore, the Survey said, it capital mobility.’’ for tightening of money sup- ply-side pressure in the near
exchange reserves increased the dollar from Rs 50 in April would be essential to balance The appreciation of rupee ply to an extent which could term. It could spurt due to re-
Ahmedabad 100 106 100 127
by $ 31.5 billion to $ 283 billion. 2009 to Rs 46 per dollar by De- ‘‘competing objectives of price impacts exports from the affect growth. And, it does not turn of pricing power with
As against this, in 2008-09 cember. The net effective ex- and exchange stability. Both country and, in turn, growth. support the idea of raising in- stronger recovery in growth.
Chennai 100 104 95 120
Jaipur 100 119 115 71
Pension revamp
A wishlist for exports
ALL IN THE FINE PRINT
Lucknow 100 103 102 104
Pune 100 101 97 103
and catastrophe
Surat 100 101 98 111
Team TOI ing of peak duties (custom) from the
current 10% to 7.5%. Also, it sought Kochi 100 106 95 90
insurance top
T
he Economic Survey has sug- reduction of tariffs on all capital goods
Source: National Housing Bank
gested a further stimulus boost to a uniform 3% and further reduc-
for exports despite the global eco- tion in excise duties to make exports While Kolkata showed a dra- have strong manufacturing
reform agenda
nomic recovery. and industry competitive. matic rise of 59% — albeit presence and a robust servic-
“... while the global recession The government had cut excise duty from a small base — Delhi and es industry, fared much bet-
seems to be lifting, a note of caution from 14% to 8% and service tax from Mumbai also saw apprecia- ter with the market recoup-
is needed as recovery of trade is still 12% to 10% in the wake of the global tion upwards of 20%. ing faster and posting positive
Team TOI vulnerable and fragile given the fact financial slowdown. India’s exports, af- However the best story gains. After Kolkata, the
that it is mainly govern- ter falling for 13 consecu- comes from Tier 2 cities. Most biggest rise in prices has been
T
he Economic Survey has called for ment support and policy tive months since October of these cities, growing fast in Mumbai at 24%, followed
statutory recognition for the Pension driven... Besides, the turn- 2008, turned positive from on the back of local demand by Delhi at 21%. As these
Fund Regulatory and Development around in trade growth is November 2009. But in and as feeders to larger cities, prices are for the first half of
Authority (PFRDA) and said that success of largely due to the lower April-December period, ex- clocked some of the highest the last calendar year, it is
pension reforms will facilitate development base effect of the last year ports were down by 20.3%. gains. Cities like Bhopal, likely that the upturn has fur-
by providing social security. (2008) which was in fact a The Survey said the ear- Faridabad and Ahmedabad ther consolidated. Recent sur-
It also suggested development of a cap- lost year on the trade front ly signs of pick-up in out- showed jumps of 39%, 36% veys by firms has shown that
ital market solution for catastrophe risk in- as the progress in export put, industrial and trade and 27% respectively. With even in cities like Bangalore
surance, which transfers insurance risk for sector of earlier years was PUSHING FOR SOPS growth in India and other growth in India getting more and Hyderabad prices are be-
natural calamities like earthquakes and mercilessly frittered away countries, are due to the low inclusive and drawing in re- ginning to rise on the back of
by the onslaught of the global reces- base and are even lower than the ab- gions beyond the big metros, a dwindling inventory, stabil-
sion,” the survey said. solute values of the pre-crisis period. these cities exhibit Bharat’s ity in jobs and pay hikes for
Even as the government hints at a “The downside risks for world and In- growing purchasing power. the prime consumption class
gradual withdrawal of the stimulus dian trade lie in the fact that though Worst hit, according to the — young, middle income cou-
packages, the survey suggested fur- the fall has been arrested, both output Survey, are cities like Banga- ples. According to the
ther reduction in excise for export- and trade recoveries are still fragile as lore and Hyderabad whose Economic Survey, the share
oriented industries. For the mer- recovery has been pumped up by stim- economies are heavily de- of the realty sector in the GDP
chandise sector, it suggested funda- ulus by different countries including pendent on their tech indus- continues to rise. From 8.9%
mental policy changes that include India, effects of which may dry up if PROJECTIONS IN HAND: Finance minister Pranab Mukherjee try’s demand power. These in 2005-05, it has risen to 9.2%
more tariff reforms through lower- natural recovery doesnt follow.” presents the state-of-the-economy report cities have been witness to a in 2008-09.
I-T recast linked to expanding tax pie
Project delays keep
Team TOI contributing to the problem of low
Income & Consumption (per capita)
income tax compliance, such as the adding to costs
T
he Economic Survey 2009-10 large informal sector, weak legal sys-
has asked the government to Income Consumption tem, ambiguity in tax laws, inade- Team TOI of the ease of doing business,
go in for radical reforms in tax
Rs Growth (%) Rs Growth (%)
quate information and accounting India ranks 133rd in the world.
administration for increasing re- system and corruption. Singapore ranks 1st, Malaysia
source generation in meeting its fi-
2004-05 29,745 - 17,620 -
It quoted a study that shows, in 23rd, and China 89th, it not-
WIDENING SOCIAL SECURITY COVER nancial commitments for develop- India, significant compliance gains C
ommenting on the per-
formance of the UPA
government’s ambi- ed. The number of days it takes
mental initiatives.
2005-06 32,012 7.6 18,909 7.3
would accrue from expanded em- tious infrastructure and so- in India to enforce a contract
floods to the capital markets through is- It has suggested increasing the
suance of catastrophe bonds. “The instru- number of audit officers and their
2006-07 34,533 7.9 20,168 6.7
ployment. With regard to increased cial sector projects, the Eco- is 1,420. It can no longer be ar-
support staff in circles, both own and nomic Survey pointed out that gued that this is inevitable giv-
ment (catastrophe bonds) is widely used in supporting staff in the income tax
2007-08 37,328 8.1 21,841 8.3
cross revenue effects turn out to be delay in their implementation en the complexity of contracts
advanced countries like US, UK and Japan department and altering procedures statistically positive and significant. resulted in cost overruns. because it takes 150 days for
and there is scope for introducing it in coun- for grouping taxpayers into assess- 2008-09 38,695 3.7 23,012 5.4 Further, issues such as taxpayers Speeding up of the process at the same in Singapore, 300 days
tries like India to provide insurance against ment units. “This can be imple- strategically selecting into wards or the stages of project ap- in the US and 406 days in Chi-
contingencies,” the Survey said. mentable options for reforming the
2009-10 40,745 5.3 23,626 2.7
circles, variation in support staff or provals, awarding of con- na, the Survey pointed out.
Talking about pension reforms, the sur- tax system for generating higher rev-
Source: CSO
enforcement effort generating
vey said, ‘‘The success of pension reforms enues,” the Survey says.
Note: Income is taken as GDP at market prices
spillover effects on workload and
will not only facilitate the flow of long-term It said consideration should be giv- compliance in related units may be
savings for development, but also help es- en to remove the ward or circle distinction, though here one has to be cautious not to en- considered for change to increase the effi-
tablish a credible and sustainable social se- replacing it with random assignment rules. courage corrupt officials to misuse the sys- cacy of tax collection.
curity system in the country..” This will remove the strategic underfiling tem,” the Survey pointed out. Encouraging “Hence the problem is not of the size of
Provision of a statutory status to the incentive, with beneficial compliance effects, efforts to improve the quality of information bureaucracy. If anything, there is scope for
regulator would help PFRDA perform its it said. Revenue gains may be achieved by re- available to assessing officers and including growth. The need is for administrative re-
regulatory and development roles effec- allocating support staff from wards to cir- measures of penalty effort in their per- forms so that the resource of bureaucratic
tively, it said. PFRDA faces the challenge of cles, where they can be more productive. formance evaluation will also be helpful in personnel can be used more effectively in
expanding the distribution network of the “Penalty and prosecution effort appears reforming the tax administration, it said. promoting individual initiative,” the Survey
new pension scheme to cover the entire un- to have significant effect on compliance, Many factors have been acknowledged as pointed out.
organized sector and educate citizens to
take appropriate investment decisions by
improving financial literacy levels.
The PFRDA was set up as a regulatory
body for pension sector. But it is yet to get Wake-up call for govt on fuel prices
statutory powers as the concerned Bill BUREAUCRATIC HURDLES REMAIN A MAJOR CONCERN
lapsed in Parliament with the last Lok Sab- Team TOI hovering around $80 a barrel and
ha. The PFRDA is engaged in consolidat- oilmarketers losing heavily, a re- tracts and implementation Even for closing a business, the
ing initiatives taken so far, regarding im-
plementation of the full New Pension Sys-
tem and expanding the reach of the distri- T
he government’s report vision in prices is almost given. could address the problem. time taken is nine months in
card on the economy does Even the Congress has grudg- “Incomplete contracts are Singapore, 18 months in the
not outline a roadmap for ingly admitted the need for such a major cause of cost over- US, 20 months in China and
bution network. reforms in the fuel pricing regime a move. runs,” it said, adding that the seven years in India.
The NPS was introduced by the govern- but gives only a veiled signal to The question is when and delays are ubiquitous and the “If one were to look at this
ment from January 1, 2004, for new entrants the petroleum ministry that there whether decontrol will be full or percentage of projects with from a brighter angle, India’s
to the central government service, except the may be no alternative but to come with the rider of a price time overruns goes from unpardonably large bureau-
Armed Forces, and was extended to the gen- deregulate at least motor fuel band. The ministry is waiting to 60.7% in power and petroleum cratic costs are like a valu-
eral public from May 1, 2009, on a voluntary prices in view of high oil prices see how much the Budget allo- sector, 95% in shipping and able resource buried under
basis. The features of the NPS are self-sus- pushing up the subsidy bill. cates for fuel subsidy. That ports and 98% in railways, to the ground, waiting to be ex-
tainability, portability and scalability, and Pointing out that record crude amount may well decide the a well-rounded 100% in health cavated and used. Cutting
based on individual choice, it is envisaged prices led to a substantial rise in quantum by which fuel prices and family welfare. down these costs is like un-
as a low-cost and efficient pension system the subsidies, the Survey said the will have to be raised immedi- Most time overruns are ac- earthing a free, valuable re-
backed by a sound regulation. practice of giving bonds outside ately. Two, it is also hoping that companied by cost overruns. source that was lying idle,”
The Survey said since the opening up of the Budget to state-run oilmar- PUMPING UP THE PRESSURE the Budget may pare some taxes Since the 1980s, the propensi- the Survey said.
the insurance sector, the number of par- keters for keeping pump prices to minimise the hike. ty towards cost overruns has Last year, the finance min-
ticipants has gone up from six in 2000 to 44 artificially low led to higher sup- suggested that the reforms carried Read with the suggestion that One view is that the Budget come down steadily and time istry had informed Parlia-
at present, operating across life and non- plementary demand for grants. out in the fertiliser sector — where the proposed UID can be turned may reduce some taxes on fuels overruns have come down ment in response to a written
life categories. Insurance was opened up to Major budgetary subsidies have the government decontrolled non- into a carrier of subsidy, this is but may slap a similar levy un- marginally but they are still question that India’s undrawn
the private sector in 2000 with the enact- risen to 2.2% of the GDP in 2008- urea items to move to a nutrient- enough indication that fuel der another head. That way, the at a worrisome level, it said. external loan from multilat-
ment of the IRDA Act 1999. The post-liber- 09 from 1.6% in 2003-04. Oil bonds based subsidy regime and raised prices — at least petrol and diesel quantum of the needed hike will The Survey blamed this on eral agencies for many of the
alisation period has witnessed tremendous alone accounted for 1.7% of GDP urea prices — ‘‘can be carried out — should be decontrolled and be reduced and state-run firms delays due to bureaucratic infrastructure and other proj-
growth in the insurance industry, particu- in 2008-09. for other products’’, in line with subsidy should be provided in a will get some reprieve but the gov- hurdles. On bureaucratic ects amounted to Rs 95,487
larly in the life segment, it said. In such a situation, the Survey the Kirit Parikh panel report. targeted fashion. With oil prices ernment will still get its money. transactions costs, in terms crore till March 2009.
*TOICTM260210/ /14/K/1**TOICTM260210/ /14/Y/1**TOICTM260210/ /14/M/1**TOICTM260210/ /14/C/1*
TOICTM260210/1R1/14/M/1OICTM260210/1R1/14/C/1OICTM260210/1R1/14/K/1OICTM260210/1R1/14/Y/1
CMYK
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