It’s Paswan versus Sinha now

Nor does the manner in which the government has been handling the longoverdue hike in prices of kero-sene and LPG augur well for Sinha. As thispaper highlighted around a week ago, the per-unit subsidies on both LPG andker-osene have shot up so much, the total outgo on this is a whopping Rs12,000 crore. Nor is this something that was a historical legacy, difficultto correct. Kerosene subsidies, which were Rs 5.18 per litre in 1996-97,have been sha-melessly increased to Rs 7.23, and LPG subsidies have beendoubled – at Rs 144 per cylinder, this means consumers are paying just alittle over half the actual cost.

The point that needs to be highlighted here is that way back in 1998, theUnited Front had committed to a schedule of cutting petroleum subsidieskerosene and LPG ones were to be cut by roughly a third last year and thenagain this year. Despite this, the government has not raised prices duringthe full year. What’s likely is that the government will raise LPG andkerosene prices in or around the Budget, and will claim that they’ve cutsubsidies. They will have, but the point that few will notice is thatthey’ll be a year behind sc-hedule. If the sch-edule had been followed, andthe go- vernment had increased prices at the beginning of the fiscal year,the LPG/kerosene subsidy bill would have been Rs 4,000 crore less today.

The reason why the government didn’t hike prices, is that with electionsconstantly happening, they thought th-ey’d lose support incidentally, thelatest reason for postponing the hike is that the government’s powerfulally, Chandrababu Naidu, is facing some elections in his state, and doesn’twant to take any chances with alienating voters!

The situation with food subsidies, which are likely to exceed the budgetedtarget of Rs 8,200 crore by over 50 percent, is similar. Today, believe itor not, both wheat and rice supplied at the ration shops to those below thepoverty line cost less than what they did a de-cade ago, even in nominalterms. Common rice sold for Rs 3.77 a kg in 1991 and today costs Rs 3.50 forthose below the poverty line wheat which cost Rs 2.8 then, is now Rs 2.5for those who are below the poverty line.

This is the tragedy of coalition politics, that the likes of Paswan and(unfortunately) even Chandrababu Naidu can get the government to dance totheir tune. Never mind that, even if Sinha achieves the impossible task ofsticking to this year’s deficit target, the overall situation is back tosquare one, or that which prevailed during the crisis year of 1990-91.

As a recent World Bank estimate shows, the combined fiscal deficit went downfrom 10.9 percent of GDP in 1990-91, to 9.2 percent after a year ofManmohanomics, to 7.9 percent by 1995-96. Then, after the likes of Paswangained the upper hand, it started going up, ending at a whopping 9.6 percentlast year last year, when the Paswan Pay Commission impact really hit thestates, their combined deficits shot up from around 2.7 percent earlier to awhopping 4.2 percent.

So, with this kind of opposition within, and the need to balance the budgetacquiring very serious proportions, what are Sinha’s options? Well, sincethere will be a definite limit to what he can do to curb populism, it’spossible that, as in his last two Budgets, he may impose fresh taxes on usa feature of his last two Budgets has been new taxes of Rs 10,000 crore eachtime. Thank you, Mr Paswan.