The Union Finance Minister’s penchant for window-dressing figures is clearly evident in the interim Budget which he presented to Parliament a few days ago. But nothing he has done changes the fact that the economic scenario is gloomy, writes UTTAM GUPTA In the interim Budget he presented to Parliament on February 17, Union Minister for Finance P Chidambaram has achieved fiscal deficit at 4.6 per cent of GDP during 2013-14 against target of 4.8 per cent. He has set a target of 4.1 per cent for 2014-15 which is even lower than 4.2 per cent as per roadmap laid last year. When viewed in backdrop of a shortfall of around Rs 77,000 crore in in tax collections and Rs 30,000 crore...
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Category: Fiscal deficit/subsidies
Interim Budget 2014-15 – Fiscal consolidation or mathematical jugglery
In the interim budget presented to Parliament on February 17, 2014 Mr Chidambaram has achieved fiscal deficit at 4.6% of GDP during 2013-14 against target of 4.8%. He has set a target of 4.1% for 2014-15 which is even lower than 4.2% as per road map laid last year. When viewed in backdrop of shortfall of around Rs 77,000 crores in in tax collections and Rs 30,000 crores in proceeds of disinvestment crores totalling Rs 107,000 crores, this makes one suspect about the quality of much touted fiscal consolidation. During the last decade of UPA dispensation, he has mastered the art of mathematical jugglery to camouflage the true inflows and outflows with eloquence. In recent years, Mr Chidambaram has used...
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One step forward, two steps back
If raising the cap on subsidised LPG cylinders was bad enough, withdrawing Aadhaar linked payouts was disastrous The UPA Government is prone to talking loud on economic reforms. Yet, it is reluctant to take hard decisions. The government committed two blunders recently: it backtracked on the LPG subsidy reduction and — what’s worse — withdrew the direct benefit transfer (DBT) scheme. By doing so, the government has let go an opportunity to prune massive leakages in food, fertiliser and LPG subsidies and bring about a much-needed fiscal correction. Let us first look LPG subsidies. Flip-flops all along Prior to 2002-03, sale of LPG (besides diesel and kerosene) was subsidised under an administered pricing regime. This was paid for by higher...
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Enough of this urea populism
A urea price hike is in order to curb subsidy outgo and redress nutrient imbalance A Group of Ministers (GoM) was set up last year to suggest a suitable hike in urea price to neutralise increase in energy cost, so that subsidy can be reined in. The Government, however, has categorically ruled out any increase until general elections. The maximum selling price (or MRP) of urea has been under control since 1957. Until the late 70s — a period of low inflation and low feedstock price — the MRP was higher than the cost of production and distribution. Hence, there was no subsidy. Since 1977, equation was reversed, with cost exceeding selling price. The Government had to give subsidy to...
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Populism is back with a big bang
Close on the heels of AAP government in Delhi announcing a 50% cut in power tariff on supplies to residents consuming up to 400 kwh (units) per month, other states have followed suit. While, Haryana has notified similar cut, Maharashtra has slashed tariff by up to 20% for consumption by residents up to 300 units per month. On supplies to farmers wherein rates were already low at Rs 1-1.5 per unit, tariff has been reduced by a further 50%. The claims by these governments that the decisions will not affect their respective budgets are baseless and un-substantiated. In Delhi, Mr Arvind Kejriwal had proclaimed that funds to support 50% cut in power tariff – across the board – would be...
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Sacrificing Coal India (CIL) at fiscal altar
Following a ‘subtle’ diktat from powers that be, the Board of Coal India Limited (CIL) has approved an ‘interim’ dividend of Rs 18,300 crores out of which Rs 16,485 crores will accrue to central Government. Together with dividend distribution tax (DDT) of Rs 3100 crores, the Government would have garnered close to Rs 20,000 crores during current fiscal 2013-14 by way of interim dividend alone. Originally, the Government was contemplating to divest 10% of its shares in CIL to mobilize Rs 20,000 crores which represents 50% of total proceeds from divestment of PSU shares at Rs 40,000 crores. This was scaled down to 5% in view of mounting resistance from various quarters. Intended to generate around Rs 9000 crores, even...
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Milching PSUs for Government profligacy
Faced with huge shortfall in tax revenue and expenditure (especially subsidies) going out of bound, Government is frantically looking for resources to rein in deficit within 4.8% of GDP or Rs 540,000 crores for the current year i.e., 2013-14. It has opened battle lines on several fronts. The steps under serious consideration include a substantial compression in plan expenditure, postponement of subsidy payments and cut in Government procurement etc. Another item on the centre stage is proceeds from dis-investment of Government’s shares in public sector undertakings (PSUs). While, preparing the budget, it had estimated these proceeds to be Rs 40,000 crores. It had also taken credit of Rs 14,000 crores from sale of its residual holding in BALCO & HZL....
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Direct transfer of ‘interest subsidies’ to farmers – a pipedream
A Committee headed by Nachiket Mor, a member of RBI board to draw up a plan for overhauling the Indian banking landscape has recommended that ‘banks must be required to freely price farm loans on the basis of their risk models and any subvention’ And, waivers deemed necessary by Government should be transferred directly to farmers and not through interest subsidies or loan waivers. Farm loans should not be priced below base rate. This recommendation clearly acknowledges that grant of loans to farmers at concessional interest rates or loan waivers distorts credit markets and results in sub-optimum utilization of funds. It also results in reduced availability of funds to other sectors. Besides, cost of credit to non-farm sectors is higher...
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Dr Manmohan Singh press conference – an exercise in ‘obfuscating’ facts
The 5 years of governance (2009-10 to 2013-14) under UPA II has been an economic disaster. But, Dr Manmohan Singh during his press conference on January 3, 2014 – third during last one decade of his un-interrupted stint as Prime Minister – tried to camouflage it unsuccessfully though. Having got a mandate to re-govern in 2009, it was only logical that Dr Singh should be doing an introspection on the performance of UPA Government during the last 5 years viz., 2009-10 to 2013-14. Yet, he preferred to amalgamate UPA I & UPA II and exhorted that economy had done consistently well during last one decade. To even make a reference to the performance under UPA I at current juncture is...
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Is Kejriwal indulging in populism?
In a drastic shift from conventional approach to governance, immediately after being sworn in as CM of Delhi, Mr Kejriwal has got cracking and taken decisions to deliver on two major promises made in AAP’s election manifesto. These are reduction in power tariff by 50% on supplies to households consuming less than 400 units and supply of 20 kilo liter of water per family per month ‘free’ to all those families having a metered connection. For decades, established political system has either reneged on commitments given to the public or acted with a huge time lag giving much less than what was promised. Quite often, winning parties have even slept over till it is time to face electorate again. This pattern...
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