India could become the world’s fastest-growing economy in the next four years, the Economic Survey for 2009-10 tabled on Thursday said, hinting it was about time the government started withdrawing some stimulus given last year to counter the slump, in Budget 2010 to be unveiled on Friday.
The two big risks: recurrence of a failed monsoon and an uneven pace of the global recovery that could derail the Indian economy from growing by 8.50-8.75 per cent next year and 9 per cent in 2011-12.
Predictably and politically, inflation remains a major concern for a government groping for options to sustain growth while keeping prices — particularly of food that rose by 17.5 per cent as per data released on Thursday — under check.
Worse, retail prices in the country are rising at a rate 10 times faster than that of wholesale prices, the survey noted, rekindling speculation that the Budget would have a fair sprinkling of price control measures.
Finance Minister Pranab Mukherjee said the country would see a growth rate of 8.5 per cent in 2010-11 fiscal. “We began with a sense of uncertainly and (are) ending with a sense of confidence,” he said, adding the sense of despondency and gloom of the fiscal beginning 2009-10 is clearing.
The 13th Finance Commission (TFC), which recommended a higher share of Centre’s revenues to states, urged for a gradual exit of stimulus.
The government has accepted the major recommendations of the commission that include a Rs 50,000 crore “grand bargain” to states as an incentive to migrate to a nationwide goods and services tax (GST) regime.
If adopted, GST would offer a one-stop solution to a multitude of levies such as excise and octroi that would be subsumed under a single tax.
This would remove distortions in the indirect tax regime, that, according to TFC chairman Vijay Kelkar, could bring in benefits of upto Rs 2,300,000 crore or about half of India’s GDP over the next 10 years.
TFC has also urged states to draw up a roadmap for divesting stakes in the public sector enterprises (PSE). It has also recommended that the Ministry of Corporate Affairs closely monitor the statutory accounting compliance by these PSEs.
The commission has also laid down a four-year fiscal consolidation roadmap where the Centre’s fiscal deficit (government’s total borrowings) would come down to less than 3 per cent of GDP.