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Planning Commission wants
higher savings rate for higher growth
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Higher FDI is required to
achieve 8-9% GDP growth
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Economic Reforms opposed by
Government’s communist allies
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The Planning Commission has warned that the present savings rate of 28-29%
could merely ensure a GDP growth rate of about 7.5 per cent and higher savings
and foreign direct investment (FDI) is necessary to get a growth of 8-9% in the
11th financial plan.
The Commission said that a savings rate of 32% and the “only way to push up
the saving rate, will be to work out a package of fiscal incentives to get
people and companies to save more.” This recommendation is in sharp contrast
with the finance ministry’s efforts to raise revenue by cutting tax exemptions
on savings.
Officials say that a variety of tax saving schemes is “not needed” and a mere
“broad direction” “should be done, especially in the pension and insurance
sectors, which primarily finance long gestation infrastructure projects.” The
United Progressive Alliance (UPA) Government is planning to introduce
legislation to open up the pension sector, with up to 26 per cent FDI followed
by incentives in the next budget. The Government seems to be of the opinion
that “Opening up the sector will bring in more funds into play” including
attracting “large amounts of FDI.”
Desperate for FDI, the UPA will like to reform retail, infrastructure, mining,
and power but would face considerable opposition from the communists whose
support they need to stay in power. Multinationals are asking the Government to
reform for 100% FDI, especially in mining. Domestic companies are opposed to
export of scarce minerals and this will likely show up in the upcoming review
of the National Mineral Policy. However, the export of raw materials without a
policy to export manufactured goods is not good economics. China follows a
policy of importing raw materials and exporting manufactured goods of higher
value.
It is possible to accommodate 100% FDI in mining if the miners bring in either
capital or partners that can process the mined material to valued added goods.
Now, that would be good economics.
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