Mr Jaswant Singh is headed the way of his predecessor, Mr Yashwant “Rollback” Sinha. The budget proposed an increase in urea, di-ammonia phosphate and muriate of potash fertilizer prices by a measly Rs 12, Rs 10 and Rs 10 respectively, per bag of 50 kilogrammes. The presumption that this price hike will hurt poor farmers is untenable. First, fertilizer subsidies are routed to farmers through fertilizer companies using the retention price scheme mechanism. Since retention prices are not unit- and feedstock-based and use averaging instead, gold-plating by fertilizer companies is inevitable. What does one expect if naphtha-based units produce fertilizer for Rs 16,000 per tonne, while gas-based units cost Rs 8,000 per tonne' Now that the proposed hike in fertilizer prices has been rolled back, there will be an additional outgo of Rs 700 crore and this largesse will be reaped not by farmers, but largely by fertilizer companies. Repeatedly, the group of ministers for fertilizer pricing has postponed reform of the scheme and the new deadline is 2006, if not later. Surely, the best method of subsidizing resource-poor farmers is to directly subsidize them using an input voucher scheme, rather than using the via media of fertilizer companies. Second, to the extent that subsidy benefits trickle down to farmers, beneficiaries are large farmers.
Poor farmers in unirrigated and dry-land areas rarely use fertilizers. Rich farmers in Punjab, Haryana, western Uttar Pradesh and now Andhra Pradesh are a different matter. Evidenced in repeated hikes in procurement prices, these beneficiaries also have a disproportionate voice in the political system today. It was this class that Mr M. Venkaiah Naidu represented when he announced immediately after the budget that the Bharatiya Janata Party wanted a rollback. The prime minister’s response was the most significant. When the finance minister turned to the prime minister for advice, Mr Singh was asked to consult Brahma. Mr Singh no doubt harboured the impression that his creator was the prime minister, only to realize that the true creator in any election year is the voter. With the opposition baying for blood in a drought-afflicted year, interest-waivers, enhanced subsidies on inputs and credit, and removal of the special cess on diesel may well follow. This is part of the same jigsaw that persuaded Mr Singh to reduce by 1 per cent the rate of interest on housing and consumer-durable loans taken by Central government employees. It is this kind of populism and fiscal profligacy which has driven the Centre and state governments to the verge of bankruptcy, and no amount of debt-swaps will solve the problem until populism is curbed. Unfortunately, neither the government nor the opposition shows any signs of a sense of responsibility. Time was when socialism was the enemy of economic reforms. The real enemy now is populism, an ugly product of democracy.