The Hindu Business Line : Beyond cosmetic measures

The Centre’s announcement of an austerity drive, in response to the tightening fiscal situation, could easily end up as a token gesture and little else. Given the fiscal bind it is in, more fundamental responses were called for. Its food and fertiliser subsidies may work out to more than Rs 1,50,000 crore, while its tax revenues may fall short of the estimated growth of 17.5 per cent over last year’s revised estimates, given the likelihood of an economic slowd own. Even without reckoning the compensation to oil companies in the Budget accounts, a fiscal deficit target of 2.5 per cent of gross domestic product and a revenue deficit target of 1 per cent of GDP seem hard to achieve. Curbs on air travel of government officials, fewer five-star conferences or curtailed expenses under such heads as publicity, welcome as they are, cannot bridge the gap. Fiscal prudence of this sort should be considered the norm, rather than part of an ‘austerity drive’.

The Centre urgently needs to put its finances into order. Its resource situation would have been better had it displayed the conviction to raise petrol, diesel and LPG prices gradually over the last year. While cost-push inflation would have been a short-term fall-out, the economy would have learned to be more energy-efficient. Sadly, governments tend to take an inordinately long time over policy decisions that brook no delay. Elections taking place in some part of the country or the other at regular intervals only make the process more arduous. Merely resolving to launch austerity drives is the easy way out. As the single biggest consumer of energy, the government needs to adopt a more serious approach to its own energy demand management. Even if one leaves aside the oil economy, there are many areas of expenditure management the government has chosen to ignore because of the lack of political will. The Expenditure Reforms Commission had, in 2001, identified posts and departments, particularly in the Ministry of Information and Broadcasting, that could be closed. There has been little movement on that front. In 2005, the Prime Minister had mooted a performance-linked model for the bureaucracy, which allowed for premature retirement of those who were not considered up to the mark, but nothing was heard of that proposal subsequently. Non-merit goods account for more than half the subsidies.

Given the pressure on resources and the need to maintain the current levels of economic growth, the country cannot afford profligacy. Besides, there is no reason why the political class should be left out of the austerity drive; its travel and other expenses must be kept under check. Parliament, rather than an independent body, decides how much its MPs should be paid; a proposal in 2005 to set up a body comprising the RBI Governor, Planning Commission members and senior bureaucrats to decide on remuneration of MPs was shot down. There are many leaks to be plugged; the time has come to go beyond cosmetic measures.

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