Laying the roadmap ahead of the Budget, the Economic Survey on Thursday sought sweeping financial reforms, an ambitious disinvestment programme, free pricing for fuel and fertiliser, opening railways to private sector and liberalising FDI in defence, retail and insurance areas.

Stating that the worst of the global meltdown was behind, the Survey, presented in Parliament, said that a growth of up to 7.5 percent was possible during the current fiscal but cautioned that financial investors could be manipulating global oil and commodity prices.

The economy grew by 6.7 percent in 2008-09, pulled down by slower expansion of 5.8 percent in the second half of the fiscal in the face of the global crisis.

It also prescribed radical tax reforms, including phasing out of all surcharges, cesses and transaction taxes, a new Income Tax Code, review of customs duty exemption and moving to a uniform duty structure, as also implementation of Goods and Services Tax from April next for long-term sustainability.

Asking the government to divest up to 10 percent equity in all unlisted public sector undertakings with an annual disinvestment target of Rs 25,000 crore, the Survey also recommended auctioning of all the unviable PSUs.

Though there are indications that the economy may have weathered the worst of the downturn, it cautioned that the situation needed "close watch on various economic indicators including impact of the economic stimulus and developments taking place in the international economy."

Giving a snapshot of the economy during 2008-09, the Survey said: "The Indian economy has shock-absorbers that will facilitate early revival of the growth," adding that banks were financialy sound and forex reserves and debt position were within the comfort zone.

The fall-out of the global economic crisis on the Indian economy had been "palpable" in the industry and trade sectors and had also permeated the services sector, the Survey said, pointing that the wide-ranging challenges included enhancement of physical infrastructure and productivity in farm sector.

The Survey, tabled in Parliament by Finance Minister Pranab Mukherjee, also sought reduced role for government and end of state monopoly in areas like Railways, coal and nuclear power while seeking up to 49 per cent Foreign Direct Investment in defence and insurance.

The hitherto politically sensitive areas of FDI in multi-brand retailing, also caught attention of the the Survey, which recommended foreign investment in the area beginning with food.

A day after the government raised the prices of petrol and diesel by Rs four and two, respectively, it said that fuel prices should be freed from government control.

Besides, it added, the government should also develop a policy response system and financial buffer for use when oil prices rise above USD 80 per barrel in the global market.

The uncertainties surrounding the world economy and the need for minimising the second round impact of the global shock necessitate continued fiscal stimulus, the Survey said, adding: "Within the proposed fiscal expansion, the mix of expenditure and tax cut would be critical."

The Survey also asked the government to auction 3G spectrum and make it "freely tradable with capital gains on spectrum to be taxed under the Income Tax Act."

It also suggested that the government should pursue various pending bills like PFRDA Bill 2005, Forward Contracts (Regulation) Amendment Bill 2006 and the Insurance Laws (Amendment) Bill 2006.

Suggesting faster reforms in the banking sector, the Survey said the government should amend the laws to align voting rights in banks with equity holdings, besides raising FDI limits. The suggestions also include phased increase in FDI limits and easier entry of foreign banks and other overseas financial sector entities.

It also made a case for linking interest rates on small savings schemes to debt instruments of the government or rates of bank deposits of similar maturity.

For orderly development of capital markets, the Survey said all financial market regulations should be brought under the purview of the Securities and Exchange Board of India.

High Networth Individuals (HNIs) should be allowed to register and invest directly through authorised Indian investment intermediaries, it said, adding "this will allow ban of indirect ways of investment such as P notes".

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Highlights of the Economic Survey 2008-09