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Subsidy nightmare

Author: Editorial
Publication: The Indian Express
Date: February 10, 2012
URL: http://www.indianexpress.com/news/subsidy-nightmare/910311/

Pranab says he’s losing sleep over subsidies, he should try and wake up his party leadership

Finance Minister Pranab Mukherjee says he is losing sleep over the subsidies he has to provide for in the budget for 2012-13. There are surely reasons for him to be insomniac. Subsidies on oil, fertilisers and food have increased substantially, leaving him no space to juggle around. He also knows a lot of subsidies do not reach the intended beneficiaries. The budget for the current financial year was prepared with certain assumptions on global crude oil prices, which have gone awry. India is a price-taker, and its dependence on imports is overwhelming — almost four-fifths of its demand are met through imports. The year also saw a sharp depreciation of the rupee — so the government has ended up paying more rupees for every dollar of imports. The combined impact of the two has forced the government to provide for higher subsidies. Mukherjee himself acknowledged in the winter session of Parliament that the subsidy bill for 2011-12 has overshot estimates by almost Rs 1 lakh crore.

But this need not have been so. Neither Mukherjee’s colleagues in the cabinet — barring Sharad Pawar, who warned of rising food subsidies — nor the Congress leadership ever made any effort to explain why fuel product prices need to be market-linked. Subsidies are the only heads in the otherwise inflexible expenditure budget of the government that are discretionary in nature. Throughout the year, Mukherjee slept over recommendations and proposals to hike prices of diesel, petrol and LPG cylinders. While wishing the country this new year, Prime Minister Manmohan Singh woke up to the realities of a worsening fisc and underscored the need for paring subsidies. “Some subsidies such as food subsidies are justifiable on social grounds. But there are other subsidies that are not and these must be contained,” he said. But the larger Congress’s political leadership still feels quite apologetic to talk about issues such as disinvestment or subsidies.

On March 16, Mukherjee has an opportunity to set a firm roadmap for decontrolling fuel product prices. This will let him sleep well, and soothe the nerves of those concerned about the India growth story.
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