The insurance and providend funds sectors are likely to be the primary vehicles which will be used to quicken the reforms process. The much promised extra funds for boosting infrastructure development will come from these sectors. And it is likely that the government will follow through on privatising insurance and allowing foreign companies to come in.

In this direction, the Survey wants independent regulatory bodies in all areas of infrastructure, where there are "natural monopolies". Ratings and certification systems and self regulatory bodies are in for an overhaul as well.

The target is to attract higher levels of foreign direct investments. Greater procedural simplifications in this respect has been recommended.

The Survey hints at retaining the deep cuts announced last year in direct taxation rates as "it increases disposable incomeand savings".

The government's compulsions to meet its expenditure obligations may call for a hike in indirect taxation levels. The Survey promises to persevere with the process of prudent fiscal management and has suggested the phasing out of revenue deficit over the medium term.

The Survey has set the target of putting back the economy on a 7 to 8 per cent growth rate and a savings target of 30 per cent of GDP. As a corollary, the debt market will be deepened and widened so that companies can tap savings easily.

Large scale market intervention in the agr cultural sector, including imports, is not ruled out as supply management will be of crucial importance to offset the possible shortfall in output, especially of sugar, cotton and wheat.

There is no talk of a cut in the ballooning level of subsidy to foodgrains and fertilisers though proper targeting continues to be the buzz word. On the other hand, the rationale is that as percentage of GDP, subsidies have fallen.

The Survey hints thatconstraints on supply management may cause inflation to rear its head again. Some short term measures, including higher money supply, may be in the offing to give that extra push to a faltering economy.

The Survey rationalises it and says that short term problems may appear to be at variance with long term objectives, but this should not be misconstrued.

The Survey does not rule out further depreciation in the Rupee. The real effective rate of exchange continues to be on the higher side. This vindicates the latest spurt of the dollar and is indicative of the government's position that fall in the value of the domestic currency is in line with the economic fundamentals. Talk of capital account convertibility seems to have receded into the background. Such convertibility presupposes a sound banking system capable of handling risks inherent in globalisation.

But the survey makes it point to say that the banking system has a long way to go before free capital flows can be allowed.

On the capital marketfront, a more comprehensive set of regulations for the private placement market has been suggested. Studies have been recommended to find out why the primary market continues to remain dormant and why the average investor has lost confidence.

Additional resources will be mobilised, the Survey claims, to fund the social sector. Additional revenue in the budget is likely to be mopped up in the ensuing Budget in the name of higher allocations to welfare projects.

Call for liberalisation of investment, PF norms

The Economic Survey has called for liberalisation of investment norms governing insurance and provident fund (PF) to ensure long-term funds flow into infrastructure projects. The survey has pointed out that measures taken by the government are not enough to facilitate flow of funds into the infrastrucuture sector.

In view of the long gestation period, infrastructure projects require funds with long maturity, which can be provided by insurance and PFs. The financial savings of theseinstitutions are long-term liabilities which can be converted into long-term assets. It has suggested steps to develop the domestic debt market to facilitate flow of contractual savings for infrastructure financing. Contractual savings include financial savings of households with provident funds and insurance companies "which are critical for the development of a long-term debt market in our country".

Life Insurance Corporation (LIC) has been given greater autonomy in the utilisation of investible funds. The abolition of restriction regarding investment of 25 per cent of LIC's investible funds in specified proportion has enabled LIC to invest the entire amount available under the ceiling of 15 per cent on the basis of their commercial judgement but subject to prudential norms.

The investment pattern of Group Schemes Fund has also been liberalised. The revised pattern provides for investment at not less than 40 per cent in government and government-guaranteed securities, thereby leaving 60 per cent withLIC for market investment. In order to make available contractual savings for infrastructure projects, the scope of Socially Oriented Investment has been widened to include ports, roads, including highways, and railways. LIC has also been permitted to make such investment in private sector, subject to prudential norms fixed by the LIC Investment Committee/LIC Board from time to time.

The blurring of the traditional distinction between banks and financial institutions, has led to the relaxation in project financing norms for infrastructure by banks.