Commentarao: S.L. Rao
For a secure future
The food security bill will barely begin to take effect when the elections come. The best economic brains in the government are silently against it. P. Chidambaram cannot coolly contemplate a huge rise in government expenditure when the deficit is already high. The next prime minister and his finance minister must deal with it.
The Indian economy is in terrible shape, and almost at the bottom of the list among emerging economies. The expected withdrawal of cheap money by the United States of America is only partially responsible for this. All the present ills — high Central government deficit, continuing high inflation for over two years (measured at wholesale level), high current account deficit, high balance of trade deficit, the collapsed rupee, huge external commercial borrowings coming up for repayment in 2014, foreign exchange reserves composed mainly of debts (covering around nine months of imports, declining investment and industrial production) — are results of poor governance. Lack of coordination between ministries, poorly drafted contracts for public-private infrastructure projects, poor project implementation and contract management, poor response to potential insolvency and stranded investments in infrastructure, lack of accountability in the bureaucracy, absence of independent investigation of corrupt officers and politicians and inadequate opportunities in health and education for the poor are some of the contextual reasons for the situation.
What should a new government, in power by May 2014, do?
The government’s fiscal deficit must be slashed. Subsidies on oil products (petroleum, diesel and domestic gas) must be eliminated in one swoop and retail prices left to the market, with the regulator keeping a close watch. Fertilizer subsidies must be capped so that they do not remain a growing burden. Increases in dearness allowance should be frozen (for a stated period), as they were in 1975, when inflation was over 20 per cent. A time limit must be put on some recent actions, such as reduction in outward remittances by Indians (not companies), increased duties on gold imports, stopping duty-free imports of expensive television sets and so on.
Social welfare schemes (the public distribution system, Mahatma Gandhi National Rural Employment Guarantee Act and others) should undergo frequent and reliable social audits. States identified for having high leakages of funds and wrong targeting of beneficiaries should have their funds under these social welfare schemes sharply reduced. The PDS is highly corrupt and inefficient. Until a reliable means of identifying beneficiaries is in place, the PDS and additional food security should be merged with the delivery of the intensive child development services and the school mid-day meal scheme. Early introduction of a cash benefit system in lieu of the physical distribution of grains should be accelerated.
The scheme to support losses of state electricity boards (of over Rs 120,000 crore) should cease. Instead, states that have a time-bound privatization programme for electricity could be supported. The Centre and the finance commission should relate Central fund transfers to states to a given percentage on populist ‘freebies’. Anything above should mean a reduction in Central transfers.