|Walk the talk|
|Thursday, 09 June 2011 00:00|
Funds would be committed (for more fuel subsidies) with least impact on the fiscal deficit”, finance minister Pranab Mukherjee is reported to have told over 30 Indian and foreign institutional investors at a confidence-building meeting on Tuesday. What does that mean? The finance minister met the investors to reassure them about India’s prospects, to convince them that investing in India (and perhaps in the PSUs whose paper will be out soon!) would be a wise decision, and all he did was to make them more jittery. It was always obvious that the Budget allocation for petroleum subsidies, R23,640 crore as compared to last year’s expenditure of R38,386 crore, was a large under-provision. Investors were looking to the FM telling them he planned to raise petroleum prices, and instead he’s telling them he may provide for more subsidies. That’s supposed to convince them the government is serious about reform! And what hidden surpluses does the FM have that will prevent a huge overflow of oil subsidies (this year’s under-recoveries which will be shared by the oil PSUs are estimated at R1 lakh crore unless sharp price hikes are made), indeed most are looking at tax collections growing slowly given the overall slowdown.
Similarly, at a time when the economy is so clearly trending down, the ministry isn’t doing too much for its credibility by repeating the old 8.5% GDP growth story. Any revival in growth depends critically on the investment climate and interest rates. RBI is determined to keep hiking interest rates, and there’s little to suggest a sharp improvement in the investment climate. Forget big reforms, the government hasn’t even been able to clear something as easy as the Cairn-Vedanta deal for months—as this paper has been arguing for months, if ONGC is so convinced Cairn is treating it unfairly, it can go in for arbitration. There’s a critical coal shortage that’s crippling the power sector, so serious that the Prime Minister has called for a meeting with all concerned—the meeting has been postponed thrice over the last month. The Group of Ministers on petroleum prices hasn’t met though the buzz was it would meet as soon as the election results came in. Between Ramdev and Anna Hazare, it seems the government has little time for constructive policy-making. Not surprisingly, investors came out of Tuesday’s meeting as unconvinced as when they went in.