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Government's decision on de-linking AADHAR, increasing subsidized cylinders to 12 put Indian economy in a wrong direction at a crucial time when both fiscal consideration and welfare steps should be balanced.

03 Feb 2014

NEW DELHI (Commodity Online): As general election is round the corner, ruling government is doing everything possible to woo the electorate thus, to cling to the power for the next 5 more years but the welfare steps really axe the already ailing economy. The decision of the government to de-link LPG subsidy from AADHAR and increase the number of subsidized cylinders to 12 from April is economically a wrong move at a crucial time when both fiscal consideration and welfare steps should be balanced.

The Current Account Deficit (CAD) had come down below $50 bn from last year's record $88 bn due to import curbs on gold and buoyancy in exports. Commerce Ministry data shows exports in December, 2013 were valued at US $ 26.35 billion (Rs.163109.25 crore) which was 3.49 per cent higher in Dollar terms (17.24 per cent higher in Rupee terms) than the level of US $ 25457.54 million (Rs. 139119.85 crore) during December, 2012. Despite the fall in CAD, new welfare measures are expected to adversely impact India Government’s fiscal balances .

India is the largest energy consumer in the world after the US, China and Russia and India's top forex outgo is on oil imports. Increasing subsidized cylinders to 12 will automatically shoot up the consumption and escalating crude oil prices increase huge foreign exchange outgo. US Federal Reserve's decision to cut its bond purchases by another $10 billion to purchase USD 65 billion per month against USD 75 billion per month earlier might affect the Indian markets despite assurances by the Finance Ministry. Union Minister for Rural Development Shri Jairam Ramesh announced that MGNREGA wage rate will be enhanced from 1st of April this year due to inflation and MGNREGA wage rate has already been linked to Consumer Price Index and the yearly revision follows from it. All these factors will keep the Indian economy inflationary.

Oil Minister Veerappa Moily announced on Monday that the government would slash CNG prices by Rs.15/kg, or nearly 30 per cent and natural gas prices (PNG) would also be cut by Rs. 5 per cubic metres, or nearly 20 per cent, with immediate effect.

Last Friday, India's oil marketing companies (OMCs) have increased diesel prices by 50 paise per litre while retaining petrol prices at previous levels. Analysts said the hike in diesel prices could prove inflationary and Reserve Bank of India's effort to tame inflation may be partially offset by the fuel price hikes. Meanwhile, India's import price of crude oil went up to $105.50 per barrel on January 30 compared to $105.26 per barrel on 29th. In Rupee terms the prices have risen to Rs 6618.02 a barrel compared to Rs 6547.17 a barrel the previous day.

“The government must continue its endeavour to curtail subsidies and correctly target them, to improve expenditure efficiency. The current move estimates an additional burden on the fisc of anywhere between Rs 3000-5000 crore following this move. Also, under recoveries for oil and oil products for the fiscal year 2013-14 are expected to cross Rs 1,40,000 crore,” said, Mr. Sidharth Birla, President, FICCI.

“FICCI believes that the roll out of the direct cash transfer scheme last year was a step in the right direction. We need to recognize that implementation is a drawn-out process and cannot be without glitches. However, once the system for Direct Cash transfer of subsidies is in place we will have greater transparency and better resource allocation. We do not have the luxury of taking two steps forward and one backwards", added Mr. Birla.

(Photo Courtesy: ddpavumba at FreeDigitalPhotos.net)

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