Friday, March 16, 2012

Pranab Mukherjee's workmanlike 2012-13 Budget does a radical rethink on subsidies


Finance minister Pranab Mukherjee's voice almost trailed off and went into a sing-song mode as he read the last sections of the nearly two-hour long Budget speech in the Lok Sabha on Friday forenoon. Most of them were the amounts allocated and the increase in allocations compared to the previous year. It seemed that he has tweaked the numerous allocations to give a sense of movement but that there was really major in any of the things he was proposing. As the speech ended, there was a sense of relief of sorts all round that it has ended. Prime minister Manmohan Singh shook hands with Mukherjee and walked off, and Congress president Sonia Gandhi just stood for a moment longer before she left. There were some like minister of state for parliamentary affairs Narayanasamy and labour minister Mallikarjun Kharge who walked up to Mukherjee and shook hands with him. The BJP members trooped out together.
Communist Party of India-Marxist (CPI-M) parliamentary leader Sitaram Yechury and Basudeb Acharia seemed to hold back their fire and describing the Budget as burdening the poor and letting off the rich. Former finance minister and senior BJP leader Yashwant Sinha argued that the situation was as bad as in 1991 and there was nothing in Mukherjee's budget to meet this challenge of fiscal crisis.
But Mukherjee did some things here which would have otherwise raised the hackles of political opposition but they did not. It is either because there is a tacit consensus on some of the major issues or the point has been missed.
On the burning issue of subsidies, Mukherjee acknowledged that there was a point beyong which subsidies are not sustainable. Now that is not something that will be trumpeted by any political leader or party. But Mukherjee had managed to put it all in his Budget speech.
"Fiscal consolidation calls for efforts to both raise the tax-GDP ratio and to lower the expenditure," he said. He talked of the "need to take a close look at the growth of our revenue expenditure, particularly on subsidies" and that they (subsidies) become "undesirable if they compromise the macroeconomic fundamentals of the economy, more so, when they don't reach the intended beneficiaries."
And then he declared government policy on subsidies: "The Government has decided that from 2012-13 subsidies related to food and for administering the Food Security Act will be fully provided for. All other subsidies would be funded to the extent that they can be borne by the economy without any adverse implications. It would be my endeavour to restrict the expenditure on Central subsidies to under 2 per cent of GDP in 2012-13. Over the next three years, it would be further brought down to 1.75 per cent of GDP. Such a step is needed to improve the quality of pubic spending. Our effort now will be directed towards better targeting and leakage proof delivery of the subsidies."
The other radical shift in the disbursement of subsidies is through a form of cash transfer. He has announced three pilot projects to deliver subsidies through cash transfer. One is the mobile-based Fertiliser Management System (mFMS), which is to be rolled out this year, and where the subsidy will be transferred to the retailer and at a later stage to the farmer. This is expected to benefit 12 crore farmer families, while "curtailing misuse of fertilisers" and as well reduce the money spent on fertiliser subsidy.
A similar pilot project in Mysore is to be used for "selling LPG at market price and reimbursement of subsidy directly into the beneficiary's bank account. And a similar pilot project for sale of kerosene is to be carried out in Alwar in Rajasthan.
Mukherjee in some ways has proved to be a militant economic reformer more than even P.Chidambaram and Manmohan Singh. But Mukherjee the politician does not believe in wearing his market economist credentials on his sleeves. As a matter of fact, Mukherjee seems to believe that he was the first finance minister to have moved towards a market economy when he was finance minister in the early Eighties when Indira Gandhi came back to power in 1980 and shed her conspicuous socialism of the  late 1960s and early 1970s. 

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