The Economic Survey has, in recent years, lost its lustre in providing any pre-view to the General Budget that is to follow the next day. But the 2011-12 Survey by the Cornell University Professor, Dr Kaushik Basu, who returns to his academic career later this year after having served as the Chief Economic Advisor in the Ministry of Finance did some refreshing plain-speaking. The introspection, he grandly terms it as, “micro-foundational reforms for achieving desired macro-economic outcomes to put India on a surer-footing for sustained, inclusive growth and all-round development”.

Without mincing words, the Survey candidly conceded that in India “when policies have failed, they have done so more often because of faulty implementation and fault lines in the detail rather than in the broad conception”.

In a direct plea to return to the path of fiscal consolidation by a government that has increased the contents in the basket of entitlements in its ever-ending quest to be pro-poor, the Survey cryptically said, “if we want to keep inflation down and post robust growth, we have to aim for rapid fiscal consolidation”.

In a snide chastisement to the authorities who allowed fiscal health to go haywire this year, it said that while an expanded deficit can boost consumption and economic growth, this is “a medicine akin to antibiotics. This is very effective if properly used and in limited doses, but can cause harm if used over a prolonged period”. Hence it told the government that its aim must be to effect rapid fiscal consolidation.

Tax-gdp ratio

The sure-footed strategy in which this has to be achieved is by “raising our tax-GDP ratio and cutting down wasteful expenditures”. It noted that the Centre's gross tax-GDP ratio (Budget Estimate) in 2011-12 stood at 10.5 per cent.

Even as this might go down a notch or two when revised figures come in the budget tomorrow, the Survey rued that this is below what “we had achieved in the past and all effort has to be made to raise this”. The aim must be to cross 13 per cent by the last year of the 12th Plan (2016-17).

Reminding the government that the critical task of inclusion cannot be left to the free market, the Survey has made no bones about assailing the UPA coalition by stating that “to try to deliver all these benefits” such as provision of the basic needs like food, education and health services to the poor “by using the machinery of the State and the bureaucracy will be to create untenably large transaction costs and corruption”.

One need not look far beyond that several official and civil societies have repeatedly pointed out gaping holes in the delivery mechanism of these well-meaning welfare measures that suffer from weaker designs to be of any crumb of comfort to the vulnerable and the destitute.

It cautioned the government against going ahead with a law that ensures that basic needs of food are met for the entire population with "direct intervention and government subsidisation”. Instead its aim is to gradually move to a system where the subsidy is handed over directly to the poor so that they can use this to buy the food from the market.

Permanent inactivity

Yet another plain-speaking on policy paralysis and reform fatigue that had gripped the UPA-II that has led to the worst slowdown of the economy when GDP growth is estimated at 6.9 per cent in 2011-12, it noted that one consequence of heightened awareness of high-profile corruption scandals and welcome civil society activism was a sense of caution among civil servants.

It quipped that some civil servants in this season of charges and counter charges have resorted to “no action since one way to avoid the charge of an ill-considered or worse ill-intentioned decision is to take no decision”.

In hindsight, this is what has supervened to keep the bureaucracy in permanent state of inactivity to earn the government the sardonic epithet of ‘government in a silent mode' all through these months. The Survey hit the nail on the head when it pointed out that ‘coalition politics and federal considerations played their role in holding up economic reforms on several fronts, ranging from diesel and LPG pricing and taxation reforms such as the Goods and Service Tax (GST) and Direct Tax Code (DTC) to FDI in retail and reform of the Agriculture Produce Market Committee (APMC) Act .

The Survey is right in pulling up the government when it said “the signal of shortages and rising cost of inputs in the area of many fuel and energy resources is not permitted to be transmitted to the consumers”. This is particularly so “in a market where all dominant players are public sector companies, market price is not a very meaningful concept”.

Will the Finance Minister, Mr Pranab Mukherjee, listen to the voice of his own Ministry's advisor by deigning to deregulate diesel price and to move away from price controls? The Union Budget may have an answer tomorrow!

> geeyes@thehindu.co.in

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