In a display of rare courage, Manmohan Singh’s Government has finally decided to bite the bullet by raising the price of diesel by Rs 5 a litre and putting a cap on subsidised LPG cylinders. While the under-recovery in the case of diesel was Rs 17 a litre, in the case of LPG cylinder (14.2 kg) it was Rs 347 a cylinder (plus taxes). Even so, leaving rationed kerosene untouched still defies logic where the under-recovery last year was Rs 27,350 crore and most of it finds its way into the black market; it is used for mixing with diesel.

Soon after the announcement of raising the diesel price, the government cleared 51 per cent FDI in multi-brand retail and 49 per cent in aviation. It also announced stake sale in four PSUs — Hindustan Copper, Oil India, MMTC and Nalco — which is likely to help raise up to Rs 14,000 crore. After dithering for more than two years, the Prime Minister has finally decided to say goodbye to policy paralysis and unleash animal spirits. The Prime Minister while chairing a meeting of the Cabinet Committee on Economic Affairs on September 14 reported to have said: “The time for big bang reforms has come. If we have to go down, we go down fighting.”

OTHER MEASURES

A number of other measures are also lined up to provide a boost to the declining savings, investments and GDP growth. The government’s inability in the past several months to push through some of the much-needed reforms and ease its mounting subsidy bill had put the country in danger of becoming the first of the big, emerging BRICS economies to see its credit rating downgraded to junk.

Against the backdrop of industrial production data for July showing a measly growth of 0.1 per cent, Finance Minister P. Chidambaram told cash-rich PSUs to speed up their investments or lose their cash pile. The Finance Minister assured the PSU chiefs that all impediments to investment would be removed. The PSU chiefs, in turn, expressed confidence of achieving their capital expenditure commitments this fiscal. This move has come at a time when optimism was fading and investor confidence had hit an all-time low. The Finance Minister has also promised a blueprint for fiscal consolidation, a review of the controversial retrospective amendments to tax laws and policy changes to boost investor interest in insurance and mutual funds. In a clear reversal of stance from the tax policies followed during the tenure of his predecessor Pranab Mukherjee, Chidambaram said the Government will aim to provide “clarity in tax laws, a stable tax regime, and a non-adversarial tax administration.”

Some other measures expected soon include the fast-tracking of National Investment Board proposed by the Finance Minister, a further relaxation of the external commercial borrowings policy, faster clearance of mega projects, and reaching out to States for early implementation of the Goods and Services Tax.

GROWTH SCENARIO

With falling industrial output, declining exports, persistently high inflation, and unsustainable levels of fiscal and current account deficits, the country’s growth scenario has turned bleak. In his opening remarks at the full Planning Commission meeting for approving the 12{+t}{+h} Plan document, the Prime Minister spoke of three economic scenarios of “strong inclusive growth” (8.2 per cent), “insufficient action” (6-6.5 per cent) and “policy logjam” (5 per cent). In other words, he has cautioned that even the now lowered GDP growth target of 8.2 per cent a year from the earlier 9 per cent cannot be taken for granted.

(This article was published on September 19, 2012)
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