New Delhi, April 4: Even as the country prepares for the polls, North Block is busy putting the finishing touches to a series of second-generation reforms that will involve pruning subsidies and raising the tax-to-GDP ratio to rein in the fiscal deficit and giving farm sector reforms a fresh thrust.
Finance minister Jaswant Singh has made it clear to his principal aides that they will have to work out a plan to target higher-end growth rates this fiscal. North Block is consequently working on a two-pronged plan to control fiscal deficit — the first by increasing revenues and the second by cutting down subsidies. It is also crafting strategies to reform agriculture and finish ambitious infrastructure programmes.
Subsidies to be targeted will include the spending on cooking gas and kerosene, money spent on the public distribution system and on fertilisers.
These plans that are designed to provide the next big push to reforms will be in place for the government to take action on after the elections are over. “The second-generation reforms exercise has been going on for some time. The PMO and other key ministries have been involved in it,” said an official.
What lends it an urgency is the realisation that the over 8 per cent growth rate of this year — on the back of a good monsoon, bumper crops, global recovery and low interest rates — will be difficult to sustain unless large-scale reforms are introduced.
North Block also favours initiating long-delayed plans to reform the bureaucracy by pruning its size. Bureaucrats over 50 years of age with a minimum of 15 years of service are likely to be offered a package deal to stay at home and steps taken to abolish a greater numbers of jobs in the government. The BJP government has already banned fresh recruitment to the grade of peons and junior clerks.
Top finance ministry officials confirmed kerosene and cooking gas are sure to become dearer in June. “We have prepared a note that will come with the actual budget increasing kerosene prices by 80 paise and cooking gas by Rs 22.50 a cylinder,” officials confirmed. Currently, cooking gas is subsidised by Rs 90 and kerosene by Rs 2.35 a litre. The total bill for this subsidy comes to Rs 8,116 crore.
Officials also said the government would try pare the whopping Rs 28,000 crore food subsidy bill by at least Rs 8,000 crore. The brunt of this cut will be borne by the middle class which is likely to be taken out of the purview of the rationing system by re-targeting subsidies.
At the same time, the government will reduce purchase of wheat and rice from farmers from the next kharif season to ensure it does not create another gargantuan food mountain, whose holding costs and buying price account for the lion’s share of the total subsidy bill.
The government currently holds a food store of more than 30 million tonnes. The BJP government is naturally loath to buy more wheat to add to a stock which embarrassingly refuses to disappear even as it costs some Rs 8,000 crore a year just to keep in the silos.
The winter crop, which will be reaped this month, will be bought at normal volumes as the government does not wish to upset the electoral apple cart.
At the same time, urea and other fertiliser subsidies totalling around Rs 20,000 crore are likely to be slashed by half. The government wants all fertiliser firms to shift to using gas from naphtha to make urea and stop the old system of subsidy based on output costs.
The government wants to end fertiliser subsidy payouts as its has been eating into its budget in a major way and it is being increasingly viewed as a subsidy which helps make fertiliser manufacturers profitable and not the farmers who are supposed to benefit from it.
The farm sector is being targeted for the next big push as realisation has dawned that though agriculture accounts for slightly less than a quarter of the GDP, it employs nearly 70 per cent of the populace. “If it shines, GDP growth figures shine even brighter as spending on industrial and service sector goods are pumped up by any improvement in farm sector incomes,” said economists working for North Block.
North Block wants spending to be stepped up in agriculture infrastructure and involvement of private investment in a bigger way in farming. “We also need to cut out the maze of laws that restrict farm trade and streamline agricultural credit delivery systems,” said officials.
Global trade in farm produce stands at about $640 billion and North Block hopes that India will in the next few years leapfrog from being a marginal player with a stake of just over 1 per cent to a more respectable 5 per cent share of the market.