FM prefers it bland

Finance minister Yashwant Sinha's response to the FE Economic Agenda starts off with an interesting disclaimer: his views are of the government and not necessarily BJP's. Sinha is being perfectly honest in thus hinting that BJP may not accept his target of cutting the fiscal deficit (of the Centre and states) from the current 8 per cent of GDP to 5 per cent in the medium term (five years). What he has not said, however, is that other political parties too may not fall in line; nor how much of the proposed three percentage-point cut he expects the states to effect. True, so much depends on the Eleventh Finance Commission's award, due next year. But what of the Centre? Silence is golden, so Sinha confines himself to explaining how deficit reduction is to be brought about: PSU asset sales, control over wasteful and low priority expenditure, and additional resources through appropriate cost recovery charges. Sinha omits a reference to raising the low tax GDP ratio, but talks of expanding tax base, modernising taxadministration and making tax system friendly to taxpayers. With the general election round the corner, the omission is understandable,Sinha has wisely prescribed a moderate deficit reduction target in a bid to get the widest approval. This will ensure that there is no sharp cutback in public investment, which retarded GDP growth in recent years. GDP growth is important. But there will be problems if the burden of deficit reduction on states is not kept light: social sector spending will have to take cuts which the states will be loth to effect. This could be fertile ground for Centre-states tussle. Even PSU equity sales on a sufficiently large scale will not be easy, as is clear from last five year's average annual disinvestment record. It is simplistic to prescribe control over wasteful and low priority expenditure; four successive governments, including Sinha's own, have failed to identify waste or prioritise expenditure.

Sinha has said hardly anything drastic in asking for resources through a hike in user-charges (bus fares, power tariffs, irrigation water charges, etc). But surely he knows that the ruling party in Punjab has ducked imposing a minimum electricity charge; and its support to the coalition government at the Centre has cost the nation a pretty packet in terms of the largesse to the powerful wheat farmers; (this has made imported wheat cheaper than subsidised domestic wheat in the south and the west). Finally, it may be good politics to promise a rise in defence expenditure; but enhanced defence priority will mean new taxation or slow progress to fiscal deficit reduction (or both). Finance ministers are politicians; they don't always say what they mean.

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