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What Fiscal Rectitude?

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Finance minister Pranab Mukherjee has a unique ailment. He is suffering from sleepless nights which are not caused by indigestion, fever, flatulence, gout or catarrh — all favourite Bengali diseases when properly pronounced, with their wellknown, oft-repeated and exhaustively documented symptoms of distress. His sleeplessness is due to a Delhi-based non-Bengali disease called subsidies. No worthwhile Bengali medical doctor nor village vaid can cure our Pranab babu of this strange malady. One would think that Bengali economists posing as ‘doctors' might be of help. Though there are many of that ilk, after reading this piece you might be led to believe that even these voluble worthies cannot solve the gentleman's problems. Here is why.

Though economists have written tomes on subsidies, the fact is that these pervasive creatures are progenies of politics and not of the dismal science. Rulers decide on subsidies to satisfy their political needs — be it ashrafis flung on the streets by the Nawab of Avadh for getting cheap kicks from seeing the poor jump after the coins, or under-pricing of fertiliser to get the support of farmers, or letting thousands, nay millions, get away without paying the right price — if any is paid at all — for their electricity. Politics is the raison d'être of subsidies. Because the language of subsidies is financial, economists falsely believe that such hand-outs lie in their bailiwick. They do not. Never did. And never will. Subsidies are pork barrel. To the best of my knowledge, pork barrel is all about politics.

That brings me to my first point. We are two years and a bit away from the next general election, which will either make or break the Congress and, in its wake, determine the fate of the First Lad of this progeny-driven nation. Why would the Congress, to which Pranab babu belongs and whose imprimatur must necessarily be writ upon the budget, decide to run the risk of decapitating itself by dramatically reducing fertiliser subsidies — and have the farmers of the Punjab, Haryana, western, central and eastern Uttar Pradesh (UP), the fertile Gangetic plains of Bihar, the canal colonies of Rajasthan, the Malwa region of Madhya Pradesh, western and central Maharashtra and the sugar belt, the Konkan, the wet districts of Andhra Pradesh, Udipi, and the rice bowl of Tamil Nadu cry "Blue Murder" in hundreds of tongues and many millions of votes? Better the diminutive Bengali babu suffers from sleepless nights, burping smelly fiscal deficits from early slumber to late light than the party and the High Command be hung, drawn and quartered in the elections. Doesn't that ring a politically sensible, though fiscally irresponsible, bell?

Now to my second point. Even if the High Command allowed Pranab babu some fiscal Gelusil or milk of magnesia and camomile tea, how much would she permit? Let us take fertiliser. The budget estimate (BE) of 2010-11 was Rs 49,981 crore. It was overrun: the revised estimate (RE) was Rs 54,977 crore. The BE for 2011-12 was Rs 49,998 crore, which will be certainly overshot by a large margin thanks to the hike in crude oil, petrochemicals and urea prices. It may be between Rs 59,000 crore and Rs 60,000 crore. Will Pranab babu (a) keep it flat? (b) slash it by 10 per cent? (c) by 15 per cent? (d) by 20 per cent? (e) or 25 per cent? And if (b),(c), (d) or (e), will he have the authority not to overshoot by even a whisker?

You know what that means? It translates to higher prices for fertiliser. Similarly, if he wanted to cut the petroleum subsidy from an estimated Rs 30,000 crore for 2011-12 to, say, Rs 15,000 crore, would the party allow diesel and, God forbid, kerosene prices to go up? We know that the much-touted food security programme will cost somewhere between 0.3 per cent and 0.5 per cent of the gross domestic product in 2012-13. Will Pranab babu be given the license to say, "I give you food security, and so I take away sops on diesel and urea?"

I think not, even if the Congress were to have a dream run and bag 100-plus seats in UP, win in the Punjab and break the BJP in Uttarakhand. Of course, if it does not — that is, takes no more than 50 seats in UP, loses in Uttarakhand and barely scrapes through in the Punjab — I certainly don't see any subsidy reduction. Only more sops. Indeed, I believe that the finance minister has two budgets in his drawer: one for the win and the other for the loss. The second is worse than the first.

Enough said. The fact is Pranab babu is the only chap in this government who can get his way. So, let him prove us wrong. If so, I am sure we will contribute to giving him a life's supply of Isabgol, Gelusil and Kali Phos. In double doses too.

The author is chairman of CERG Advisory. omkar(dot)goswami(at)cergindia(dot)com

(This story was published in Businessworld Issue Dated 27-02-2012)