The Hindu Business Line : `Higher public sector savings must for 7 pc growth rate'

ACKNOWLEDGING the need for improving domestic and corporate savings for attaining a growth rate of 7 per cent and above, the 12th Finance Commission Chairman, Dr C. Rangarajan, made it clear that major improvement would have to come from the public sector savings.

The public sector saving comprises the savings of the Government administrative departments, departmental enterprises and non-departmental enterprises.

The gross savings of the public sector was 2 per cent of the GDP in 1995-96. According to the quick estimates of 2002-03, it has come down to ( - ) 1.9 per cent, a turnaround and decline of 3.9 per cent.

According to Dr Rangarajan, it was the deterioration in the savings of the Government administrative departments from ( - ) 2.14 per cent to ( - ) 5.81 per cent that has contributed to the fall in savings of the public sector taken as a whole.

Addressing the ICFAI University Convocation 2004 here on Saturday, he said, the reduction in revenue deficit, which was tantamount to an improvement in the net savings of the Government administrative departments, was, therefore, important for raising the overall savings of the public sector.

"The objective of reducing the revenue deficit to zero by 2008-09, if adopted both by the Centre and the States, would result in a substantial improvement of the public sector savings. Thus, fiscal consolidation would contribute to an increase of overall savings and this will help to sustain higher growth rate of the economy," Dr Rangarajan said.

The second constraint that hampered the growth of economy between 1992-2002 was foreign exchange availability, according to Dr Rangarajan. The non-availability of adequate foreign exchange was acute at several points of time and it had an adverse impact on the economy.

He said the 1991 crisis was converted into an opportunity and the management of external sector since 1992 could be regarded as a success story.

On the frequently raised issue of use of foreign exchange reserves in the recent past, he said, in addressing this issue," we must start from the right end and that is by preparing a list of viable projects that could utilise foreign exchange reserves. The availability of foreign exchange facilitates implementation of projects."

"If we are serious about using the foreign exchange reserves, we must draw up sufficient number of economically viable projects with a high import content. This must be the first priority. The use of foreign exchange reserves will follow," Dr Rangarajan said.

He said the trade barriers erected by developed nations impose a serious burden on the developing countries.