Economic survey favours more liberalization

Indian Economic Survey 2007-08– which is a report card on the Indian economy ahead of the Union Budget– has favoured more liberalization and reforms. The Survey contains Policy options which may not necessarily translate into actual policy, or form a part of the Union Budget due to pressures of government’s leftist allies . It however, provide clues to medium-term policy direction the government needs to take.

In case of insurance sector, the Survey recommended raising foreign equity share to 49 per cent, while prescribing 51 per cent foreign equity in a special category of insurance companies – those providing all types of insurance such as health and weather, to rural residents and for all agricultural related activities including agro-processing.

In the banking sector, the Survey favoured allowing 100 per cent FDI in greenfield private rural-agriculture banks. Such a bank would be free to set up any number of branches in any rural or semi-rural area, the Survey said, adding that it would be free to lend agriculture and allied sectors anywhere in the country and to any industry located in non-urban area.

Survey pushes for reviving the disinvestment process, which has been put on the back burner under communist pressure. Survey has asked the government to complete divestment of 5-10 per cent stake in previously identified profit making non-Navratna PSUs.

While advocating FDI in all retail trade, suggested allowing a share for foreign equity in all retail trade, and mooted 100 per cent foreign equity in foreign branded, specialised retail chains like luxury brands, consumer durables, and semi-durables.

Facing a slowdown in the face of a sluggish growth in developed economies, especially in the US, the government will need to find a way out to implement the policy options suggested by Economic Survey to sustain the 9 per cent rate of economic expansion.