Politics may be the art of the possible, but implementing the recommendations of the Vijay Kelkar Committee — appointed to come up with a roadmap for fiscal consolidation — may well nigh be impossible, especially in today’s politically and economically difficult environment. The Kelkar Committee pointed out that the assumptions in this year’s budget presented on March 15, 2012, by Pranab Mukherjee, then the finance minister, were overly optimistic. The committee’s report says that subsidies for 2012-13 will be higher by Rs 70,000 crore, tax collections will be lower by Rs 60,000 crore and the government’s disinvestment programme would collect just Rs 10,000 crore instead of the budgeted Rs 30,000 crore. That would increase the deficit by Rs 1,50,000 crore for this financial year, and a fiscal deficit of 6.1 per cent of the GDP, rather than the 5.2 per cent the Union budget had targeted. The committee also paints a rather stark picture of what is likely to happen if fiscal consolidation is not pursued aggressively: a re-run of the 1991 crisis as inflation becomes unsustainably high, India’s sovereign rating is lowered to junk status and foreign capital flees with the ratings downgrade, rendering India’s balance of payments position untenable.
Having got everybody’s attention with this rather dire prognosis, the committee proceeds to make recommendations that are in some ways predictable. It recommends the near-elimination of almost all petroleum, fertilizer and food subsidies in four years (they account for more than 90 per cent of the entire subsidy bill). The government could do this, the committee says, by regularly implementing price increases for diesel, LPG and kerosene. For fertilizers, it recommends increasing prices of urea, and raising prices of foodgrains through the public distribution system each time minimum support prices for agricultural produce are raised. The report also recommends similar radical measures like the government selling its land holdings and having specific budget targets for disinvestment. Very few economists will deny the importance and the need for such steps. But the suggested measures are also prescriptions for political suicide. Politicians, as is well known, have a remarkable instinct for self-preservation.