The Modi Government should be applauded for bringing in key changes, but action is missing in vital areas such as fertilisers, food, power and kerosene. There is a need for reforms in these sectors which are loaded with subsidies
Prime Minister Narendra Modi should be applauded for bringing in governance reforms, liberalising foreign direct investment and increasing ease of doing business, but action is missing in vital areas such as fertilisers, food, power and kerosene.
These areas are in dire need of big bang reforms. Inefficiency, cost padding/gold plating, pilferage/leakages and corruption are rampant in these sectors, leading to the ballooning of subsidies and associated difficulties, in adhering to fiscal discipline.
An expenditure management commission, headed by former Reserve Bank of India Governor Bimal Jalan, had recommended rationalising and plugging of leakages in subsidies. One of the major recommendations was to switch over from extant cash-based accounting (under this system, income/receipt is accounted when cheque/cash is received, and expenses are recorded when the money is actually paid) to accrual-based accounting (here, transactions are recorded when they happen, irrespective of when the money is received or paid). This would rein in the pernicious practice of ‘window-dressing’ to camouflage real expenses and revenue inflows.
Successive Governments had been using this to defer payments to succeeding year, in a bid to show a healthy balance sheet in the relevant year and ensure easy compliance with fiscal deficit target. In the 1990s, the subsidy amount deferred used to be in hundreds of crores, now these run into several thousand crores of rupees.
The Modi Government has glossed over this crucial recommendation which, if implemented, will put an end to the fudging of accounts and force it to take credible action on ‘real factors’, which will lead to an increase in subsidy. Much worse, it continues with a lackadaisical approach followed by the UPA.
On May 13, the Union Government decided to freeze the maximum retail price of urea at its existing ridiculously low level of Rs5,360 per tonne, for four years (10 per cent hike can yield saving of Rs1,600 crore annually, without any adverse effect on the farmers). The direct benefit transfer of subsidy — needed for better targeting and plugging leakages — remains on paper. Without these two key policy changes, urea black marketing will continue unabated.
The Government has also decided to revive over half-a-dozen sick plants of the Fertiliser Corporation of India Limited and the Brahmaputra Valley Fertiliser Corporation Limited. But no attention has been paid if the revived plants will be able to stand on their own, under a scenario of ‘intense competition’, where subsidy is directly given to the farmers. In the food sector too, despite much bravado, reforms are stuck in grooves.
The National Food Security Act guarantees supply of food to 67 per cent of India’s population (75 per cent in the rural areas and 50 per cent in the urban areas) at a throwaway price of rupee one/two/three per kg for coarse cereal, wheat and rice. This together with huge inefficiency and splurging expenses in handling and distribution has led to a mammoth subsidy (Rs1,25,000 crore for 2015-2016).
Even as the Modi Government has kept price rise at a near zero level, it has also put in the backyard recommendation of the Shanta Kumar committee, to reduce coverage under the NFSA from 67 per cent to 40 per cent (that would have yielded savings of over Rs50,000 crore).
DBT, which has the potential to curb leakages, only a pilot project is being run in Puducherry. At this pace, it will take several years for DBT to take off on a nation-wide scale.
With regards to kerosene, considering that almost all of the subsidised kerosene is siphoned off (for mixing with diesel) and the benefit is not going to the poor, this subsidy could have been straight away scrapped.
For LPG, where less than 0.1 per cent among the bottom 20 per cent of the poor in rural areas benefit from subsidy (in urban areas, corresponding beneficiaries are eight per cent), there was a much stronger case for dispensing with this subsidy. Yet, the Government has no plans to dismantle any of these at least for now.
In the power sector, State electricity boards have an outstanding debt of over Rs4,00,000 crore, most of which is because of their accumulated losses. These in turn are caused by throwaway tariff (nil in some States), large-scale power theft and inefficiency/splurging costs.
Recently, when Union Minister for Power Piyush Goyal, rejected States’ demand for a bail-out package, one got an impression that the Centre was really acting tough.
But now, the Government is considering a package, whereby it will allows States to issue ‘sovereign’ bonds against debts they take over from the SEBs.
This will tantamount to giving them an easy option of funding the loss at a much lower rate of nine per cent, instead of the 14 per cent that they currently pay.
With this olive branch being offered for the third time (two such packages were given earlier in 2012 and 2002), they will be under no pressure whatsoever to curb theft, hike tariff or rein in the profligate SEBs.
http://www.dailypioneer.com/columnists/oped/where-are-the-big-bang-reforms.html