Imperatives for a new India

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Imperatives for a new India

Tuesday, 04 June 2019 | Uttam Gupta

Now that the BJP Government has received mandate for another term, will it will play hard ball and bring the much-needed reforms in crucial sectors?

During his first term (2014-19), Prime Minister Modi focussed on governance reforms, cutting bureaucratic red tape, simplifying procedures, expediting approvals and ease of doing business. The Government also spent its energy on effective implementation of welfare schemes, thus ensuring that assistance reaches the beneficiaries in full vide the Direct Benefit transfer (DBT). Now  that the public has given him a resounding mandate to rule for another term, he should crack the whip on long-pending reforms. The key sectors crying for immediate attention include food and fertilisers, oil, gas, power, irrigation, credit to name a few. At present, all these sectors are excessively regulated, covering all important aspects viz production, imports, distribution, marketing and pricing.

Several committees have recommended dismantling of these controls, allowing inter-play of market forces for guiding resource allocation, production/supply, distribution and pricing. They also proposed giving subsidy directly to the target group such as small and marginal farmers and poor households among others. Thus far, no political dispensation (Modi Government included) has shown the gumption to act on the above recommendations. There are three critical pressure points which have scared away successive Governments from taking necessary moves in this direction.

First, implementation of market-based supply and pricing means that the beneficiaries of subsidy will have to pay much higher price than what they are paying at present. For instance, households currently getting wheat at `2 per kg will have to pay at least 12 times more ie above `25 per kg. A farmer paying `268 for a bag of urea will have to pay at least twice as much or `536. Likewise, one will have to spend at least `5 per unit of electricity up from the current just about 50 paise. True, the beneficiary will get the extra amount (`23 per kg for wheat/`268 a bag for urea/`4.5 per unit for power) as reimbursement in his/her account as subsidy. Effectively, he/she will continue to pay the same as previously ie `2 per kg/`268 a bag/50 paise per unit. Yet, there is ample reason to worry.

Unlike the present scenario wherein he/she pays the subsidised price in the very first place, one will have to first pay the higher market-based price and then wait for the reimbursed amount to come to his/her account. He/she may not have the patience to wait. What if the wait gets longer — inevitable in a situation of budget allocation being far short of the requirement (very likely)?

Second, at present, millions of undeserving people avail subsidy just because of the manner of administering the system. For instance, urea is sold to ‘all’ farmers at a uniform low (subsidised) price. Even a large/rich farmer (land holding > 10 hectare) gets it at the same price as charged to a marginal/small farmer (land holding size < 1 hectare/1-2 hectare). For the former, this is fortuitous. Under the new system of every user having to pay higher market-driven price, the Government will be able to transfer subsidy only to the account of deserving beneficiary ie small and marginal farmers only. But this is bound to be resisted by large/rich farmers, who are used to enjoying the subsidy for generations.

It is one thing to ask the existing beneficiaries to ‘voluntarily’  give up claim to subsidy as Modi did in the case of LPG subsidy, which yielded good response (about 15 million people gave up). But things will be altogether different if the political brass takes a policy decision to deny subsidy to a particular category say, farmers having land holding size in excess of 10 hectares. Take the example of PM-KISAN scheme under which the Government gives `6,000 every year to small and marginal farmers only. But in its manifesto in the run up to elections, the BJP promised to extend the benefit to all farmers, including large/rich farmers, which it has done. Then how will it dare to withdraw subsidies already availed by them?

Third, under the existing system of routing subsidy through manufacturers or Government agencies such as FCI, several of them have got used to claiming inflated expenses (to cover up inefficiency or even ‘bogus bills’ passing muster with full support of corrupt officials) as subsidy. In fertilisers, some public sector undertakings stay afloat largely because their high production cost gets fully reimbursed under the subsidy mechanism. With the existing systems remaining in place for over four to five decades, vested interests have got deeply entrenched. They are bound to put up strong resistance to any change that involves substitution of these systems by market-driven mechanisms. Even PSUs are sure to resist as then their very survival would be at stake (unless the Government gives them budget support).

Modi will need to deal with the above pressure points skillfully. Apart from building political consensus, his bigger challenge will be to take the people at large into confidence, especially on denying ‘existing’ sops to a big chunk of them — that, too, after promising (in the run up to voting) that they will get more.

(The writer is a New Delhi-based policy analyst)

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