Sinha axe hangs over subsidies
Naik in consensus-building drive on petro price in

New Delhi, Feb 20 
The finance minister’s menu of options is limited. As he assembles the components of a watershed budget, nobody disagrees the economy needs a big repair job. That means fixing fiscal problems, resolving dilemmas over allocation of money and taking decisions on how best to use public resources to meet key social goals.

Yashwant Sinha has indicated the budget will have bitter cures for old ailments. But, there are now strong pointers that perceived harshness — or kindness — will not mean more, or higher taxes. Instead, it is the well-known, but long-ignored, problems in the way the government spends its way to a crunch, that could be the centrepiece of the February 29 document.

The unkindest cut, it now appears, will have to be borne by government departments, except the Kargil-shaken defence ministry, the cash-strapped railways and a few others. At the same time, experiments with zero-based budgeting have started, and there are signs it may be extended to many ministries, including those in the core sector.

The finance minister has already sent terse instructions to restrict the increase in non-plan expenditure to 3-4 per cent over the 1999-2000 budgeted figure of Rs 2.06 lakh crore. This actually means a cut in real terms.

Reports about the planned spending cuts have upset many insiders like the heavy industry minister, Manohar Joshi, who is believed to have voiced his fears to Prime Minister Atal Behari Vajpayee in an effort to head off what now appears inevitable.

But, the appeals don’t appear convincing during a year in which government departments have already overspent by 15-16 per cent even as revenues remain far short of their targets. This has stoked fears that the fiscal deficit for 1999-2000 will overshoot the budget estimate of Rs 79,955 crore by Rs 7,500-10,000 crore.

Luckily for the government, plan expenditure has fallen below its target of Rs 77,000 crore by Rs 3,000-4,000 crore, largely because projects did not take off on time, or were not completed. In 2000-2001 however, the government wants to hike the plan outlay by 10-15 per cent. Much of this increase will go to areas such as primary education, health and physical infrastructure.

However, there are areas where Sinha cannot skimp. He will have to, for instance, squeeze in a steep 22-28 per cent hike in defence outlay, pump money into an asset reconstruction fund for public sector banks, shell out Rs 15,000 crore for fertiliser subsidies, bear Rs 9,000-10,000 crore on food subsidies and dole out Rs 5,000 crore to help states in a fiscal soup.

Planned hikes in the prices of food and cooking gas, besides limiting cheap PDS kerosene to the most indigent, will not endear Sinha to the average middle-class citizen. While experts might applaud them, the average man will wince at a 10-15 per cent rise in prices of PDS foodgrains. However, the government wants to sweeten the bitter pill by offering poor families 15 kgs of foodgrains every month, up from 10 kgs at present.

Currently, the government subsidises foodgrains to middle class families — also described as above-the-poverty-line families — by about 17-24 per cent, and those sold to poor families by a whopping 70 per cent. However, the rise in PDS prices is likely to make open-market purchases dearer.

Under the plan to limit kerosene supplies from the PDS, only lower middle-class and poor families described as ‘carbon poor’ — a group to be identified in consultation with states — will be given the facility; others will have to buy it from the open market at Rs 8.20-8.50 a litre.

The government believes the moves will cut the current Rs 6,000-crore subsidy bill on kerosene by at least a third while that on food will come down by 22 per cent from Rs 10,700 crore.

But, the political costs to the ruling coalition — in terms of the urban, middle-class votes it could lose — may ultimately determine many figures in Sinha’s third attempt at preparing the trickiest balance-sheet in India.    

New Delhi, Feb 20 
Petroleum and natural gas minister Ram Naik is lobbying among MPs of National Democratic Alliance (NDA) for their consent to hike the administered prices of cooking gas and kerosene.

Some of the members of the NDA alliance, like DMK and PMK, are not yet reconciled to the idea of a steep hike. However, they are expected to fall in line since Prime Minister Atal Behari Vajpayee has talked to the leaders of these parties. Even the BJP-MPs have reservation on the minister’s proposal to effect a Rs 50 hike in the prices of LPG cylinder.

Ram Naik is not having his way with the finance ministry to reduce the import duty on crude drastically. He is in favour of slashing duty from the present level of 20 per cent to 10 per cent.

As of now, finance minister Yashwant Sinha has agreed to reduce duty only by five percentage points. This will necessitate a hike in the prices of diesel as well.

The government, however, is resolved not to increase the price of diesel for the time being.

According to a Cabinet approved decision, domestic price of diesel has to be in tune with the international rate.

Both LPG and kerosene are highly subsidised items. In fact, the Vajpayee government failed to implement the subsidy reduction plan in the case of these items. As a result,the annual subsidy on these two have been steadily going up.

Together, subsidy on kerosene and LPG, at current prices, work out to Rs 12,800 crore: Rs 8000 crore on kerosene and Rs 4800 crore on LPG.

Subsidy on a 14 kg LPG cylinder, on an annualised basis, works out to Rs 120. Naik has proposed an increase of Rs 50 per cylinder. His proposal has not been endorsed even by his own party MPs.

Official sources say the minister may have to water down his proposal and settle for a hike in the range of Rs 30-40 per cylinder.

Kerosene is a politically sensitive item as it is perceived to be poor man’s fuel.    


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