The Manmohan Singh Government appears to have reached a point where it does not fear losing anything else – may be not even the support of some of its allies.
This was evident when the Prime Minister said on Saturday that the Government would take “courage and some risks” to achieve a growth rate of 8.2 per cent during the 12th Plan period.
The Prime Minister’s statement came during the Full Planning Commission Meeting two days after the “big bang reform” decisions.
First, on Thursday, the Government cut the subsidy by raising diesel prices and capping the number of subsidised domestic cooking gas cylinders. Then, on Friday, it opened the floodgates for foreign direct Investment (FDI) and sell-offs in four Central public sector undertakings.
These decisions evoked a strong protest from the Opposition, some of the allies (Trinamool, DMK and Samajwadi Party), common men and women and even the Congress Chief Minister from Kerala. However, it did not deter the Prime Minister from talking about taking more risks.
The big question, therefore, is why is there a need to be more courageous and take more risks?
Subsidy front
Take the case of subsidy. The Government aims to bring down the subsidy as a percentage of gross domestic product to 1.2 per cent by 2016-17. Subsidy is mainly given on diesel, kerosene, LPG and fertilisers.
Now, consider this situation. The subsidy pay-out for the current year is estimated at 1.9 per cent of GDP. However, Finance Minister P. Chidambaram, has said that the estimated major subsidies in 2012-13 would be around 2.4 per cent of GDP, and a sharp fall, as assumed in the 12th Plan, may be ‘over-optimistic’.
Reacting to this, Deputy Chairman of the Planning Commission Montek Singh Ahluwalia gave an assurance to the Plan panel that there would be not be any reduction in the absolute number of subsidies, the cut will only be in percentage terms.
But there is feeling that even this reduction would require some more tough measures.
Kelkar panel
Here, the Kelkar Panel recommendations could come in handy. This panel was constituted to draw a roadmap for fiscal correction and consolidation. Though this report has not been made public, it is believed to have suggested raising the prices of petro-products.
This means that the recent hike in diesel prices by Rs 5 per litre and capping the number of subsidised cylinders are not sufficient. So, will the Government bite the bullet again, especially when its key ally, the Trinamool Congress, has given a 72-hour deadline for rolling back the hike in diesel prices and cap on LPG cylinders?
Containment of subsidy is related not just to the reduction in fiscal deficit but also to the current account deficit.
The Prime Minister said, “Because export performance is likely to be weak, a high growth, high investment strategy will require financing a current account deficit of about 2.9 per cent of GDP. This must be financed mainly through FDI and FII flows, so that reliance on external debt is limited. I believe we can attract the financing we need, provided our fiscal deficit is seen to be under control and our growth is seen to have regained momentum.”
The current account deficit crossed a record four per cent in 2011-12 and is expected to be more than three per cent this year. This can be brought down only if the FDI regime is liberalised further. Since this has been a politically sensitive issue, it would require more risks at the executive level.
It remains to be seen if the Government is willing to be more adventurous. The action on Thursday and Friday and the PM’s statement on Friday indicate so.
The Government’s resolve was also reflected in the Prime Minister’s speech during the full Planning Commission meeting when he said, “I believe we can make Scenario I (It is called ‘Strong Inclusive growth’ and 8.2 per cent growth in 12th Plan) possible. It will take courage and some risks, but it should be our endeavour to ensure that it materialises. The country deserves no less.”