Gujral: Action time

New Delhi, March 17: The government admits that if global prices go up, subsidies may rise, but contends that it has made up its mind on “a political commitment” to contain subsidies.

The government may have hidden off-budget “cushions” up its sleeves to absorb oil shocks as it has not budgeted for the auction of the 2G spectrum, which had been vacated following the Supreme Court order, but only for the auction of broadband and spectrum vacated by two ministries.

Finance secretary R.S. Gujral admitted in a candid interaction: “Yes, if crude oil prices do go up, subsidies, too, may go up.”

However, he said, “There is (still) political will on the issue of containing subsidies at 2 per cent of GDP.” Attempts to contain subsidies on auto fuel have in the past met with stiff resistance from the Trinamul Congress as well as other allies.

But the problem for Gujral and other bureaucrats in the North Block is not merely the adamant anti-price rise stance taken by Mamata Banerjee, but the fact that this year’s budget has assumed a crude price of $115 a barrel in calculating the fuel subsidy bill. India, which depends on imports to meet 80 per cent of its needs, is currently importing crude at an average of $125 a barrel. With fears of war over Iran’s nuclear policy fuelling an oil price spiral, the $115 figure seems a bit optimistic.

Economists working for the ministry’s department of economic affairs feel crude oil prices are likely to go up and the subsidy bill, even if the government does manage to muster the political courage to limit diesel subsidies, would still be at least double the amount set aside.

Economic affairs secretary R. Gopalan said, “Both the Prime Minister and the finance minister have given hints that they are willing to ‘bite the bullet’ (on subsidies) … it’s become a political commitment and, therefore, we can expect more steps to follow.”

However, North Block officials also hinted that there were “cushions” to absorb any oil shocks to the subsidy bill. They indicated that the total subsidy bill of Rs 1,79,554 crore, which covers food, fertiliser and oil subsidies, may be fungible.

There are also hints that the Rs 40,000 crore assumed from the auction of telecom spectrum may be an underestimation as it does not cover the 2G spectrum vacated following the Supreme Court order and the government may well earn a bonanza from there.