Plenty of cream for India's fat government
By Raja M in ASIA TImes
MUMBAI - Prime Minister Manmohan Singh, faced with inflation at a 45-month high and a pummeling of the ruling United Progressive Alliance government by opposition parties, has urged his ministerial colleagues to slash costs by cutting out conferences in five-star hotels, foreign trips, advertisements (usually boasting governmental "achievements") and overtime allowances.
The prime ministerial order for belt tightening came after the government raised petrol and diesel prices by 10% on June 4, adding to inflation already soaring over 8%. The fuel-price increase was so politically sensitive that the prime minister had to justify....
Dr Singh’s prescription
By Bibek Debroy Thursday, June 12, 2008 in Indian Express
Twenty-two times the PM told us subsidy needs reform.
How many reforms have we seen?
Quotes from 22 speeches by the prime minister follow. (1) “They were no crony capitalists, they were no fixers and lobbyists, they were no petitioners and permit-seekers, they did not seek subsidies or quotas, they did not worry too much about the hurdles ahead, for they were determined to triumph and to overcome them,” November 23, 2004, release of a commemorative postage stamp honouring Seth Walchand Hirachand. (2) “What this means is that whatever subsidies we offer to consumers must be offered transparently and be justified on stated economic, social and political grounds.
Today we are offering subsidies to a wide range of users without a proper analysis of their economic and social rationale,” the National Energy Conservation Awards, December 14, 2004. (3) “Even when governments offer subsidies to certain categories of users and there is scope for that, they must understand the relevance of this subsidy and have respect for the asset being provided to them,” April 4, 2005, launch of Rajiv Gandhi Gramin Vidyutikaran Yojana. (4) “We must reduce wasteful subsidies and divert these resources into investment and employment generation,” May 16, 2005, Congress Working Committee Meeting. (5) “We must reduce wasteful subsidies and divert these resources into needed social sector expenditure, investment and employment generation,” May 22, 2005, release of report on one year of the UPA.
(6) “A proper targeting of subsidies is of vital concern in this (electricity) context,” August 6, 2005, first meeting of Energy Coordination Committee.
(7) “We must reduce subsidies for the rich and divert these resources into investment and employment generation,” October 8, 2005, Conference of Congress CMs. (8) “We need to put a check on wasteful subsidies while targeting these to the genuinely needy and disadvantaged,” November 15, 2005, HT Leadership Summit. (9) “Our past policies of offering a range of subsidies have benefited only a few.... If we really want to help the poor, we must shift the emphasis away from subsidies, to encouraging new investment and extending social security,” January 12, 2006, investing in rural India. (10) We must examine the relevance of the entire gamut of taxes and subsidies on various energy forms and energy using devices,” July 26, 2006, Energy Conclave. (11) “Specifically, our ability to increase gross budgetary support to 2.5 percentage points of GDP in the 11th Plan will depend upon containment of open and hidden subsidies, revenue buoyancy, pruning ongoing programmes that are not very useful and successful implementation of the public-private partnerships on a large-scale in infrastructure,” December 9, 2006, NDC Meeting.
(12) “It is time to see how we can reach any subsidies to the genuinely needy and poor,” May 28, 2007, Conference of CMs on Power. (13) “Given that poverty levels in our country are still high and given that electricity is a basic necessity for some activities, I foresee that we need to give some subsidised power to the poorest consumers for some time to come. This is a social obligation. At the same time, we must move towards a more transparent system of subsidies,” May 28, 2007, Conclusion of Conference of CMs on Power. (14) “It (NDC Sub-Committee) has made valuable suggestions on expanding irrigation, in improving agricultural research, in restructuring the Rural Infrastructure Development Fund, restructuring the fertilizer subsidy system, improving seed supply and revamping the extension system,” May 29, 2007, NDC Meeting. (15) “We must reflect whether subsidies, though necessary, are being delivered in the best possible manner,” May 29, 2007, close of NDC Meeting.
(16) “We need to address the problem of mounting subsidies in food, fertilizers and now, in petroleum which is a recent phenomenon.... It is important that we restructure subsidies so that only the really needy and the poor benefit from them and all leakages are plugged,” November 7, 2007, Full Planning Commission Meeting.
(17) “Are we encouraging over use of resources through misdirected subsidies?”, November 26, 2007, Felicitation of R.K. Pachauri and IPCC. (18) “Equity does not always imply offering subsidies. If such subsidies do not reach the poor, they do not in fact address the objectives they are meant to address. I find we spend far too much money funding subsidies in the name of equity, with neither equity objectives nor efficiency objectives being met,” December 15, 2007, IEG Golden Jubilee. (19) “We also need to ensure that subsidised foodgrains are targeted at only the needy and the poor and that leakages and misdirected subsidies are stopped,” December 19, 2007, NDC Meeting. (20) “Are we encouraging over use of resources through misdirected subsidies?”, February 7, 2008, Delhi Sustainable Development Summit.
(21) “While some subsidies are useful and helpful, especially when targeted to those in distress, what our rural households seek is higher investment in land development, in water management, in seed technology, in output storage and in marketing,” April 10, 2008, Global Agro Industries Forum.
(22) “We cannot allow the subsidy bill to rise any further. Nor do we have the margin to fully insulate the consumer from the impact of world commodity price and world oil price inflation,” June 2, 2008, Assocham AGM.
Developed-country agricultural subsidies figure in other PM speeches. If one ignores those and focuses on domestic subsidies, 22 mentions in 4 years should signify that subsidy-targeting is at the top of the PM’s unfinished reform agenda. Unless one believes in Humphrey Appleby’s law of inverse relevance — the less you intend to do about something, the more you have to talk about it. With NCMP and the UPA, one shouldn’t have expected privatisation of PSUs, opening up of insurance and retail, pension reform and changes in Chapter V-B of the Industrial Disputes Act. Subject to FRBM and permitted sleight of hand there, increase in public expenditure was also inevitable.
However, one did expect greater accountability and transparency in public expenditure, much more than the Right to Information Act and the euphoria about decentralisation to panchayats and civil society vigilance and audits. A critical element in public expenditure reform is the targeting of subsidies. For the Central government, that’s interpreted as food, fertilizers and petroleum products.
What was the problem in pushing that when inflation was lower and the going relatively better? Instead, pilot programmes (such as food subsidies) promised in budget speeches came to naught. Had petroleum product prices been hiked gradually and incrementally, with targeted subsidies (NREGA provides self-identification of the rural poor), big-bang increases and the uproar would have been irrelevant. Instead, the PM’s policy intention has become irrelevant.