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Time For Bitter Medicine

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A day after the Union Cabinet cleared a a slew of major economic decisions including setting up of a Cabinet Committee on Investment under the Prime Minister to fast track mega projects and clearing the land acquisition policy for industrialisation, Finance Minister P Chidambaram hinted at tough measures in the coming days. The FM said some "bitter medicine" is necessary to restore the health of the economy and get back to high growth path.

"Some bitter medicine has to be taken this year. We have to take some bitter medicine. There is no other way...this bitter medicine is good medicine. It will restore the health of the economy and next year we can look forward to much higher growth," he said.

Chidambaram was winding up a discussion on the first batch of supplementary demands for grants in the Lok Sabha.

After growing at over nine per cent, the GDP slipped to nine-year low of 6.5 per cent in 2011-12 and during the current year, as per the RBI projection, is estimated to be 5.8 per cent.

The Finance Minister also expressed confidence that inflation, which has continued to remain a concern and a challenge, would moderate in the next two to three months. "Inflation is a challenge. Inflation worries the government. While CPI inflation is sticky, good news is that WPI inflation seems to be trending downwards...If it trends downwards, there will be some reason for comfort," he said.

The WPI inflation, which is based on movement in wholesale prices, moderated to 7.24 per cent in November from 7.45 per cent a month ago. The retail inflation, however, was at 9.9 per cent in November, up from 9.75 per cent in October.

Read Also: November WPI Inflation Eases To 7.24%

On 14 December, other than clearing the CCI and the Land Acquisition Act, the Cabinet also approved the long pending urea investment policy that will incentives setting up of new fertiliser plants and expansion of existing ones aimed at cutting import dependence, and simplified procedures for award of road projects faster. Further, the Cabinet also slashed by 30 per cent the base price for telecom airwaves in four circles like Delhi and Mumbai that went unsold in the near flow spectrum auction last month.

Read Also: Reforms Push Continues

Meanwhile, the Prime Minister's Office (PMO) in India has asked ministries to take up implementation of direct cash transfer scheme on a "war footing" before the launch of the programme on January 1. Primary activity of all the Ministries implementing schemes in the coming weeks will be to complete enrolment of Aadhaar for all beneficiaries. They also have to ensure the beneficiaries have bank accounts in which Aadhaar numbers will also be mentioned, besides compilation of beneficiary databases.

The government's announcement to roll out the direct cash transfer (DCT) scheme to replace subsidies from January next year has generated a heated debate. There have been some contentious issues like identifying target groups and whether some subsidies like food should continue through PDS, etc.

Read Also: Plugging The Leak

Read Also: Direct Cash Transfer On War Footing

Later, amid walk out by BJP and Trinamool Congress, the Lok Sabha passed the first batch of supplementary demands for grants that seek to raise government expenditure by Rs 32,120 crore in 2012-13.

Chidambaram said the government is committed to get back to the path of fiscal consolidation and to avoid downgrading by various rating agencies.

"If we do not succeed in fiscal consolidation, there is a risk of rating downgrade to junk status. We cannot afford that," he said, adding that he sought support of the House to adhere to the fiscal consolidation roadmap.

The government has come out with fiscal consolidation roadmap wherein it plans to restrict deficit at 5.3 per cent of GDP in the current year and bring it down to 3 per cent by the end of the Plan period.

Chidambaram said there was a need to give Rs 28,500 crore to Oil Marketing Companies (OMCs) as they are not able to recover the cost. The OMCs normally recover the shortfall in three ways -- by way of government subsidy, contribution from upstream oil companies and internal resources.

The petroleum subsidy has risen considerably in the past few years.

"I share concern of consumers," he said, hoping that OMCs and upstream oil companies will increase their contribution in meeting the under-recoveries.

On growth, Chidambaram said the economy is facing challenging times with a growth rate of over 5 per cent.

"Economy is challenged. But I am confident that measures we have taken will put the economy back on rail ... I hope, when I present the Budget, I will put a much better picture of economy," he said.

Chidambaram said the price of petrol is higher mainly on account of taxes, which is around 14-15 per cent.

In the 2011-12 fiscal, while the Centre collected Rs 83,723 crore through taxes on petrol, states have realised over Rs 1.12 lakh crore.

On expenditure on drinking water mission, Chidambaram said the government has spent over Rs 69,000 crore in nine years for providing drinking water to people and state governments should ensure implementation of the scheme.

Participating in the discussion, Lal Singh (Cong) demanded that government should work out a mechanism to ensure that the money sanctioned is properly spent.

Prabodh Panda (CPI) expressed concern over rising inflation, slowing economy and deteriorating employment situation.

Others who participated in the discussion were Prasanta Kumar Majumdar (RSP), Baijyant Panda (BJD), Ram Chandra Dome (CPI-M) and Anu Tandon (Cong).

(With Agencies)