HIGHLIGHTS - Economic survey

India could see growth this year of roughly 7 percent and then resume the faster expansion of recent years, provided it makes sweeping reforms including removal of fuel subsidies and accelerates infrastructure development, a key government report said on Thursday.

The economic survey prepared by the finance ministry, and released ahead of Monday's budget announcement for the fiscal year ending in March 2010, said inflation was no longer a worry and called for an urgent return to the targeted fiscal deficit of 3 percent.

Following are the highlights of the survey:

GROWTH

* The economy could grow around 7 percent in the year to March 2010, if the U.S. economy bottoms by September.

* The economy could return to 8.5-9 percent growth in medium term if reforms are pursued.

* It is imperative that the government revisits economic reforms at earliest to boost growth.

* A calibrated monetary policy approach needed for early return to high growth path.

FISCAL DISCPLINE

* The fiscal deficit target should be set at 3 percent of GDP at the earliest.

* Explore new target of zero fiscal deficit on cyclically adjusted basis.

* Lower commodity prices will help cut import bill, reduce off-budget deficit.

* Government should free petrol, diesel prices at earliest as global prices are low.

* Reform petroleum, fertiliser, food subsidies to reduce leakages.

* Revive disinvestment plan to generate at least 250 billion rupees ($5.2 billion) per year.

INFLATION

* Inflation is no longer a concern.

* Efforts to maintain ample liquidity may be source of next inflationary cycle.

* The is a need to roll back excess liquidity in orderly manner once growth picks up.

INTEREST RATES

* Real interest rates remain high despite easing of monetary policy.

* High bank deposit rates an obstacle for lowering lending rates.

CAPITAL FLOWS

* India may see current account surplus of 0.3-2.8 percent of GDP in 2009/10

* Medium to long-term capital flows likely to be lower as U.S. deleveraging persists.

FOREIGN INVESTMENT

* Raise foreign equity share in insurance to 49 percent.

* Favours foreign direct investment (FDI) in multi-format retail, starting with food retail.

* Increase FDI limits on banks, greater entry of foreign banks, tighter regulation.

FINANCIAL REFORMS

* Introduce/allow repo, derivatives in corporate debt.

* Introduce exchange-traded derivatives such as interest rate swaps.

* Introduce standardised credit default swaps on exchanges, subject to strict controls.

TAXES

* Rationalise dividend distribution tax to ensure full single taxation of receiver.

* Review, phase out surcharges, cesses and transaction taxes.

* Review customs duty exemptions and move to uniform duty structure.

INFRASTRUCTURE, TELECOMS

* Infrastructure development needs greater urgency to remove policy hurdles.

* Radio spectrum must be auctioned and should be freely tradeable.

CONCERNS, STRENGTHS

* A sharp dip in the growth of private consumption is a major concern at this stage.

* A large domestic market, resilient banking system and policy of gradual liberalisation of capital account would help early mitigation of the adverse effect of global financial crisis and recession.

* Increased plan expenditure, reduction in indirect taxes, sector specific measures for textile, housing, infrastructure through stimulus packages are providing support to the real economy.