From the Prime Ministers Office to the Planning Commission, all that is being planned to be done currently veers around the acceptance that taking high growth (9%) as a given was a grave mistake which prompted the top brass of the UPA government to take what Jairam Ramesh or Jayanthi Natarajan were doing, lightly, and try and correct at least part of the damage done during the six-odd months left. It could be even lesser!
As a senior government functionary sums it up, go, no-go has taken the economy (country) nowhere. So, what is in store for the next few months Hiking diesel and LPG prices and making efforts to expedite take-off of the projects cleared by the Cabinet Committee on Investments (CCI) so that the investment gloom doesnt deepen further, are in any case going to happen. Under-recovery in diesel has jumped to R14.50 per litre and the oil-marketing companies (OMCs) are losing R470 on the sale of every LPG cylinder, and a decision on raising prices cant be avoided. With this, there is also a plan to go back to the old formula for allocation of gas to the power and fertiliser sectors by pooling the available gas from all sources. This, in fact, is a bad idea as till the time gas production improves in the country, any shifting of gas from fertiliser to the power sector for the 18,000 MW idle capacity in the south will just create more problems rather than solving one.
Clearly, though the government is trying to make-up for as much of the lost ground as possible, it will be difficult to take bold measures to improve the investment climate or spur growth quickly. But the government can certainly look at improving its track-record in planning and implementing some of the big schemes that it has launchedthe Rajiv Gandhi Equity Savings Scheme (RGESS) and the direct benefits transfer (DBT) scheme (minus LPG) are two such.
In case of RGESS, the recipe for its failure was written in its conceptualisation and clearance. Those designing the scheme in the finance ministry named it after former prime minister Rajiv Gandhi just to ensure there was no opposition to it from any quarter. The scheme notified in November 2012 is now languishing with just a few thousand retail investors participating in it. So, as the situation stands, the scheme would continue like this because if nobody opposed it at the time of its making because it had Rajiv Gandhis name associated with it, who can touch or think of discontinuing it now.
This logic of the officials may be correct politically but reflects badly on the UPA government, considering the response to the scheme. At the end of March 31, only about 21,000 RGESS accounts were opened by the retail investors across the country and the sum invested was just
R52 crore. The parliamentary standing committee on finance in its report in April this year had told the government to review the schemes practical utility and accordingly formulate alternative proposals to encourage savings through measures such as raising the exemption limit of R1 lakh under Section 80 C of the Income Tax Act. The panel suggested this in view of the poor response to the scheme pointing out that the existing limit in a narrow band subsumes several exemptions under a single umbrella and was proven to be inadequate from the perspective of boosting domestic household savings.
At present, the RGESS gives tax benefits on investments to new investors whose annual income is less than or equal to R10 lakh (Budget 2013-14 has raised it to R12 lakh), up to a maximum investment of R50,000, allowing a deduction of 50 % of the amount invested from the annual income for that financial year.
The basic idea behind the scheme was to encourage small savers to invest in equities and in-turn improve the depth of the capital markets. The interest shown by the small investors clearly shows the scheme has failed to do that. There is a lock-in period of three years; so, even if an investor wants to come out of the scheme fully, it is not possible before the completion of three years. The question is why cant the scheme be either junked or amended suitably to attain the purpose for which it was designed
Similarly, after 8 months of its launch on January 1, the game-changer direct benefit transfer (DBT) scheme has miserably failed to change the game. According to the latest data shared by the finance ministry last week, only
R480 crore has been disbursed under the schemeof which R272 crore has been given under the DBT for LPG subsidy in 54 districts. The hard truth is DBT is not working in other areasonly about R234 crore has been disbursed in 8 months for 28 schemes covering mostly the pension and scholarship programmesand of this, only R64 crore have been transferred through the Aadhaar payment bridge.
That the DBT in LPG would succeed was known from day one. But, simultaneously, it was also known that implementing DBT for social sector schemes would not be possible till there was a clarity on what the states role would be in the scheme. The DBT in LPG is owned by the petroleum ministry and the three OMCs running it. If DBT has to succeed in other areas, states will have to be given the ownership (handle disbursement of subsidies and entitlements). The good news is that the central government finally, is veering towards this idea. But then, there is a fear that the state governments will gain more from what has been hailed as the UPAs game-changer. The irony is, without states active participation, DBT cant work. The fate of DBT, therefore, is critically dependent on this decision which is expected to be taken soon.