Worrying economic indices

India's next finance minister has a tough job on her/his hands. A number of unpopular decisions, postponed in the time of elections, will...

India8217;s next finance minister has a tough job on her/his hands. A number of unpopular decisions, postponed in the time of elections, will finally have to be taken. Among them is raising new resources to pay the bill for Kargil and fresh defence purchases. There is no escape from an early resource-raising exercise for not only has expenditure risen faster than provided for in the last budget, tax collections have not been of the anticipated order and an uneven monsoon is bad news for some key commercial crops.

Whether it is Yeshwant Sinha or Manmohan Singh or some other as yet undiscovered talent, the new occupant of the hot chair will have to clench his/her teeth, forget about being popular, and start taxing someone somewhere. Something will also need to be done about oil and petroleum prices.

The import bill on this account has doubled this year thanks to the Organisation of Petroleum Exporting Countries8217; OPEC sharp price increases.Reform in the petroleum sector, particularly in the system of administered prices, was supposed to make it relatively painless politically for domestic prices to be raised in tandem with the cost of oil in the international market.

But although diesel prices were tied to international prices to start with, they have not turned out to be immune to government sensitivities and even a modest price increase has not been possible in the election season. As for other oil and petroleum products prices, that still awaits complex politico-economic exercises while the oil pool deficit burgeons.

Wide-ranging petroleum sector reform must be a major priority for any new government. India cannot afford the many inefficiencies that exist in this sector and the continuing high level of dependency on imports. Falling international prices have turned out to be a mirage. Another return to pre-1974 price levels is most unlikely.

The evidence suggests that the recent steep fall in OPEC oil prices was reversed deliberately by the US working with OPEC and not by OPEC suddenly deciding to act like the cartel it used to be. The intention is to prevent further destabilisation of the economies and political regimes of West Asia and Russia which are critically dependent on oil revenues. So, India and the rest of the world will be paying high prices for a long time in order to maintain West Asian princes and Russian oligarchs in the luxury they are accustomed to.

A third key area for action is hastening reform in state government finances. Averting the many disasters waiting to happen there calls for a combination of toughness from the new union finance minister. The states can be led by example, of course, and prodded by policy but the time may have come now to compel some to put their houses in order.

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The worst thing to do would be to pretend that cash-flow problems and mountains of debt will disappear on their own. Matters have deteriorated during the period that economic reform became the universal mantra. It is alarming that financial institutions are now asking state governments to make provision in their budgets for repayments of their entire loans.