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    Economic Survey 2014 made realistic assessment, pinpoints areas where action is needed

    Synopsis

    The Survey has made a realistic assessment of the economy and pinpoints the broad areas where action is needed to bring the economy back on a high-growth trajectory.

    By Hemant Kanoria

    The Survey has made a realistic assessment of the economy and pinpoints the broad areas where action is needed to bring the economy back on a high-growth trajectory.

    If supply-side issues and infrastructure sector bottlenecks are removed, we can achieve the projected GDP growth rate of 5.5-5.9 per cent for FY15. Fiscal incentives will be essential to encourage investments in infrastructure and manufacturing sectors. There needs to be a lateral thinking to get the country out of the vicious cycle of inflation.

    I do not agree that a high interest rate regime will enable inflation to be contained and the last few years have experienced this imbroglio. We must not forget that we are in a situation where the Consumer Price Index (CPI) inflation figure has started coming down, while the Wholesale Price Index (WPI) inflation figure has started inching up again.
    This is something to worry about as it reflects a declining trend in domestic demand whereas input costs still remain high. In this backdrop, an inflation-targeted monetary policy can only impede growth. Investments in infrastructure is the only way out of it.

    As long as interest rates remain elevated, I am not much optimistic about more investments in infrastructure. High interest rates have affected fresh investments and industrial production has suffered. It also impacted investments in infrastructure projects which are highly rate-sensitive.

    The proposals made in the Survey are aimed at getting our house in order, and thus augur well for the long-term benefits of the economy and is likely to send out strong signals to the investor community, both domestic and foreign. If government is able to create an enabling environment for business, I am hopeful that the private sector will come in and fill the gap. I expect some steps on those fronts will be announced in the Union Budget.

    For example, a clear road map for implementation of a unified and uniform GST and a decisive call on the Retrospective Tax issue can bring in a lot of clarity for doing business. I endorse the need to contain subsidies and to this end targeted subsidy delivery through AADHAR-type platforms should be pursued.

    From the mention of the need to increase Tax-GDP ratio, I presume the Budget may announce some proposals towards expanding tax base. The Survey also identifies the need to have a vibrant bond market in order to facilitate infrastructure financing.

    While I welcome this proposal, I must add here that the Companies Act 2013 has introduced some very restrictive conditions which can stifle the bond market. Thus, the FM would need to sort out this issue before we can expect bond market conditions to improve.

    For infrastructure projects to take off in a big way, we need an urgent consensus on issues like land acquisition and environmental clearances. All these cannot be addressed in the Union Budget alone. Some of these may be taken up in the Union Budget and the others will follow. I am upbeat that these issues will get addressed soon and thus growth momentum will pick up in the coming years.

    (The writer is the CMD of SREI Infrastructure Finance.)
    The Economic Times

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