The Telegraph
Since 1st March, 1999
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Subsidy give and PF take
- Left has way on one, govt on other

New Delhi, Jan. 10: Food subsidy cut will have to wait, but not the reduction in the interest rate on employees’ provident fund.

Officially, neither the government nor the Left is linking the two, but the connection is hard to gloss over when the announcements are made on the same day.

Bowing to pressure from the Left, which was joined by sections of the Congress on this particular issue, the government today put on hold the proposed cut in supplies through the public distribution system.

At the same time, it made formal the decision taken last month to cut the interest on EPF contributions to 8.5 per cent from 9.5 for 2005-06, issuing a notification over the objections of the Left trade unions.

The decisions come two days before the coordination committee of the ruling United Progressive Alliance meets its Left allies.

Unhappy at the EPF rate cut, the unions have scheduled a meeting tomorrow. They had earlier met Prime Minister Manmohan Singh requesting him to intervene and overturn the decision taken by the EPF trustees to cut the interest rate to 8.5 per cent, which itself was higher than the 8.2 per cent recommendation made by the finance ministry.

Singh has stood firm this time, unlike on a previous occasion when he had held the rate at 9.5 per cent, as demanded by the Left unions, after a cut to 9 per cent was recommended for the last financial year.

On the same day the government announced the relief, it also raised the ceiling on foreign investment in telecom to 74 per cent, a move that had been opposed by the Left.

The two decisions on the same day had been interpreted as a give-and-take between the government and the Left. Today’s moves could be open to the same interpretation.

Agriculture minister Sharad Pawar announced putting in abeyance the decision to cut foodgrain subsidy. Last week, he had piloted the proposal to reduce rations through the public distribution system and increasing prices families above the poverty line pay.

Anxious that the decision would hit their popularity ratings ahead of polls in Bengal and Kerala, the Left as well as sections of the Congress, wanted a rethink.

“For the time being, I have decided to stay the decision. I will discuss it with my coalition partners,” said Pawar.

“I am going to explain the entire position behind the food subsidy cut to Congress, CPM and CPI,” he added.

The move was supposed to save Rs 4,524 crore in subsidies, though critics also felt a cut in ration ran contrary to government interests in lowering the food mountain of 150 lakh tonnes it is carrying at substantial storage cost.

Subsidy to keep foodgrain, fertiliser, kerosene and cooking gas prices low costs the government nearly Rs 48,000 crore a year. Most ministers are being prodded by finance minister P. Chidambaram to stem the drain.

The decision, now on hold, would have meant reduced monthly supply of wheat and rice of 20 kg to families above the poverty line and 30 kg to those below ' both down from 35 kg. Prices at which grain was to be sold to families above the poverty line were also raised marginally.

By putting the decision on hold, while the government surrenders a possible saving of Rs 4,524 crore, paying a 9.5 per cent interest would have meant a deficit of Rs 716 crore for the EPF managers.

Even at 8.5 per cent, there will be a deficit, but labour minister K. Chandrashekhar Rao believes that is manageable.

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