In adversity lies opportunity, they say. Things could not be more adverse for the government. Its popularity is zilch, inflation refuses to budge downwards, everyone in the administration is too scared even to take a deep breath, leave alone substantive decisions, the leader of the UPA ails and the world at large is conspiring to take India's markets and growth down a peg. Is there any opportunity in such adversity?
Of course. This is the time for the government to take all those tough decisions it has been postponing, dreading public anger. What about the short-term pain it would inflict on the polity and boomerang on the government? A good thing about pain is that you notice only the biggest. The severest pain the human body can experience, for example, is the one induced during childbirth. Renal colic, severe toothache and bone fracture follow. If you have renal colic, you would not notice your toothache so much. The government currently suffers enough pain to be having twins. Why waste it?
Start by slashing subsidies, most of which inflate the fiscal deficit, push up interest rates and depress growth without bringing significant benefit to anyone. Decontrol diesel and open up fuel marketing to third parties, apart from the oil marketing companies. Suppose Big Bazaar and other retailers follow the example of Wal-Mart in the US and start selling fuel. Competition from them, apart from private oil companies like Reliance and Essar, would force public sector oil marketing companies to shed the many layers of artificial cost with which they pad their prices to claim huge under-recoveries. Knock off the irrational specific excise duty on petrol and bring petrol prices in line with diesel prices. (Since this would end the skew against petrol cars, tell Maruti to settle its labour dispute fast, to boot). Raise additional revenue by levying a 1% Customs duty on crude.
Diesel prices would barely move and petrol prices would come down. Withdraw subsidised kerosene. This would put an end to adulteration of diesel. The case for subsidising kerosene has been that it is the only source of lighting for much of rural India. Solar lanterns and rural electrification are superior means to this end. But a section of the urban poor, who do not get cooking gas except in the black market, use kerosene for cooking.
So, subsidy for kerosene might need to be continued for some more time. Insist on cash transfers. Transfer the money to state governments, carry out an advertising blitzkrieg to make the entire populace aware that so much money has been transferred to the state government on account of kerosene subsidy, so that each ration card holder is entitled to so many rupees. Let public pressure make state governments work out mechanisms to transfer the subsidy to card holders double-quick. Mandate posting online of detailed, beneficiary and area-wise statements on the money disbursed, for public audit.
Withdraw subsidy for cooking gas altogether. The middle class can afford to pay what the urban poor pay in the black market. Open up marketing to allow competition to rein in price. Wherever possible, encourage city gas distribution to displace costly LPG.
Denationalise coal and decontrol coal prices. A shortterm price shock would follow, but what is a stubbed toe when you're going through labour? It would boost production, reduce dependence on imported coal, create thousands of new jobs and raise power generation. The farm sector is a sorry sight. Assorted low-yield subsidies grow wild like weeds, smothering investment.
Withdraw all input subsidies and step up investment, particularly in rural roads. Free up fertiliser pricing. Raise the minimum support price to absorb higher costs and extend purchase at MSP in every state. Farm prices and farmer spirits would soar, induce farmers to invest, boosting rural jobs, incomes and overall farm output. The short-term pain of a price adjustment is the only route to a sustained solution to food price inflation.
Of course. This is the time for the government to take all those tough decisions it has been postponing, dreading public anger. What about the short-term pain it would inflict on the polity and boomerang on the government? A good thing about pain is that you notice only the biggest. The severest pain the human body can experience, for example, is the one induced during childbirth. Renal colic, severe toothache and bone fracture follow. If you have renal colic, you would not notice your toothache so much. The government currently suffers enough pain to be having twins. Why waste it?
Start by slashing subsidies, most of which inflate the fiscal deficit, push up interest rates and depress growth without bringing significant benefit to anyone. Decontrol diesel and open up fuel marketing to third parties, apart from the oil marketing companies. Suppose Big Bazaar and other retailers follow the example of Wal-Mart in the US and start selling fuel. Competition from them, apart from private oil companies like Reliance and Essar, would force public sector oil marketing companies to shed the many layers of artificial cost with which they pad their prices to claim huge under-recoveries. Knock off the irrational specific excise duty on petrol and bring petrol prices in line with diesel prices. (Since this would end the skew against petrol cars, tell Maruti to settle its labour dispute fast, to boot). Raise additional revenue by levying a 1% Customs duty on crude.
Diesel prices would barely move and petrol prices would come down. Withdraw subsidised kerosene. This would put an end to adulteration of diesel. The case for subsidising kerosene has been that it is the only source of lighting for much of rural India. Solar lanterns and rural electrification are superior means to this end. But a section of the urban poor, who do not get cooking gas except in the black market, use kerosene for cooking.
So, subsidy for kerosene might need to be continued for some more time. Insist on cash transfers. Transfer the money to state governments, carry out an advertising blitzkrieg to make the entire populace aware that so much money has been transferred to the state government on account of kerosene subsidy, so that each ration card holder is entitled to so many rupees. Let public pressure make state governments work out mechanisms to transfer the subsidy to card holders double-quick. Mandate posting online of detailed, beneficiary and area-wise statements on the money disbursed, for public audit.
Withdraw subsidy for cooking gas altogether. The middle class can afford to pay what the urban poor pay in the black market. Open up marketing to allow competition to rein in price. Wherever possible, encourage city gas distribution to displace costly LPG.
Denationalise coal and decontrol coal prices. A shortterm price shock would follow, but what is a stubbed toe when you're going through labour? It would boost production, reduce dependence on imported coal, create thousands of new jobs and raise power generation. The farm sector is a sorry sight. Assorted low-yield subsidies grow wild like weeds, smothering investment.
Withdraw all input subsidies and step up investment, particularly in rural roads. Free up fertiliser pricing. Raise the minimum support price to absorb higher costs and extend purchase at MSP in every state. Farm prices and farmer spirits would soar, induce farmers to invest, boosting rural jobs, incomes and overall farm output. The short-term pain of a price adjustment is the only route to a sustained solution to food price inflation.
No comments:
Post a Comment