Paper Promises and Alibis

by Arun Shourie

Public Distribution System: From its very first Budget, this Government has repeatedly stressed the urgent need to overhaul the public distribution system — the poor and the lower middle class depend on it; leakages are phenomenal. At first Chidambaram declared that government would fly one sort of pilot — distributing food stamps rather than food. His way of dealing with the fact that nothing had been done was to declare in a subsequent Budget that government would fly another sort of pilot — distributing food with the aid of smart cards. In this, the final and sixth Budget of this government, we are told that an allocation has been made for this pilot — Rs. 1.1 crore to Chandigarh, Rs. 25 crore to Haryana, and Rs. 1 crore to the NIC to see how the pilot will fare. And this allocation, the Budget documents tell us, was made only on 26 December 2008! In the meanwhile, the leakages continue unabated and unchecked. That pattern holds for the black hole of subsidies as a whole.Subsidies: In his first Budget for this government, that for 2004-05, Chidambaram reminded Parliament, “Seven years ago, I placed before Parliament the first paper on subsidies.” They need to be sharply targeted, he said — a euphemism for saying that they were not reaching the intended beneficiaries. Hence, he took a decisive step: he announced another study of them!

Next year, in the Budget for 2005-06, Chidambaram reported the great progress he had made — the study had been placed in Parliament, he said. Subsidies are necessary, he said, “However, we must now take up the task of restructuring the subsidy regime,” he told Parliament, adding immediately the caveat that would constitute the anticipatory alibi for nothing being done — “we must now take up the task of restructuring the subsidy regime in a cautious manner and after thorough discussion.”

Sure enough, the alibi came in handy. In the Budget for 2007-08, Chidambram was able to acknowledge, “The issue of subsidies is proving to be a divisive one, but,” and this showed to those who had been expecting decisive steps from this “dream team” of reformers that he hadn’t given up, “I would urge the honourable members that it is imperative that we make progress on this front if we are serious about targeting subsidies at the poor and the truly needy.” But it wasn’t that he, his ministry and the government had been doing nothing. “My ministry has held extensive discussions with stakeholders on three major subsidies, namely, food, fertiliser and petroleum. We have also sought the views of the general public. Working groups/committees have gone into the question of fertiliser and petroleum subsidies. I would urge members to help government evolve a consensus on the issue of subsidies.”Manmohan Singh himself intoned platitudes to the same effect at meeting after meeting. Last year, Bibek Debroy recorded his having made declarations on the subject twenty two times. [IE, June 12 2008.]

The 2008-09 Budget did not mention the subject at all! During the year, the near-fatal consequence of not having done anything on the matter became evident as Oil and fertiliser prices shot up and the government, having moved back to the administered price mechanism, dithered and failed to pass the risen prices on to consumers. By the beginning of October 2008, the chairman of the government’s own oil company was compelled to say in public that, if urgent steps were not taken within three weeks, the company would have no resources to import oil.

But in an oblique way one subsidy was, in fact, mentioned in one of the documents that accompanied the 2008-09 Budget. This is the subsidy on fertilisers. The government had emphasised the need to distribute the fertiliser subsidy in some alternative way. In the 2007-08 Budget, the government had expressed its firm resolve to take the decisive step as follows: “The fertiliser industry has agreed to work with the department of fertilisers to conduct a study and find a solution.” And what would happen once the study was completed? “Based on the report, government intends to implement a pilot programme in at least one district in each state in 2007-08.”

So, what happened? Reporting the progress that the government had made in executing that decisive step, the document that Chidambaram submitted with his Budget for 2008/09, namely, Implementation of Budget 2007-2008, let it be known: “The modalities for providing an alternative method of delivering the fertiliser subsidy directly to the farmer are being worked out. The proposal was examined by a Group of Ministers and the report is being finalised.”

All that had happened was that under a new name and basis, the subsidy was increased by a fifth. This was called the nutrient-based subsidy regime. What now? The document that accompanies this year’s Budget proposes another study! Implementation of Budget 2008-2009, declares, “As regards nutrient-based subsidy regime, in the light of unsustainable levels of subsidy, it is proposed to have a relook on various delivery mechanisms taking on board the experience of government subventions to the targeted population which would have been successfully introduced. Since this entails a wide review of various delivery mechanisms, it may be difficult to indicate firm time for implementation. Department of Fertilisers proposes to have alternative strategies firmed up within the current financial year so that decisions for implementation could be taken at least in the next financial year.”

“A relook..”; “it may be difficult to indicate firm time for implementation…”; “so that decisions for implementation could be taken at least in the next financial year.” As pathetic as it is typical.

Compare this sequence with what the UPA government had pledged in its Common Minimum Programme: “All subsidies will be targeted sharply at the poor and the truly needy like small and marginal farmers, farm labour and the urban poor. A detailed roadmap for accomplishing this will be unveiled in Parliament within 90 days.”

Some way to manage finances.

Actually, the sentence preceding that pledge about subsidies and the roadmap had made another important commitment: “The UPA government commits itself to eliminating the revenue deficit of the Centre by 2009, so as to release more resources for investments in social and physical infrastructure.” And five years later, in the Budget for 2009-10, what are we being told? That the government is not adhering to that pledge so as to make available more resources for investments in social and physical infrastructure!

The alarming levels to which deficits reached in the late 1980s contributed to the breakdown in 1991. As Mridul Sagar and Amit Kumar of Kotak Equities’ research arm have recalled recently, between 1986 and 1991 the gross fiscal deficit was on the average 7.7 per cent of GDP. For 2008/09, the gross fiscal deficit of the Centre alone is 6.4 per cent of the GDP; once the off-budget items are included, it becomes 8.1 per cent; and when that of the states is included, it becomes over 10.7 per cent of the GDP. Even the revenue deficit of the Centre alone is liable to exceed 5 per cent of the GDP. By now the Centre’s primary balance was to have been a surplus — amounting to 1.1 per cent of the GDP. In fact, the primary deficit is liable to exceed 3 per cent of the GDP.

(To be continued)

(This article was first published in the Indian Express on March 3, 2009.)

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