Column : Not much sound in Kelkar Committee

Oct 06 2012, 01:30 IST
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SummaryIts recommendations on fiscal consolidation are either clichd or impractical.

The Kelkar Committees recommendations on fiscal consolidation balance on the edge of either sounding clichd or making impractical suggestions. The report goes on at length to say that India is in a precarious state and resembles its situation in 1991 when we had a crisis, which can be debated. It offers nothing really new and puts numbers to the fiscal impact of various measures that should be implemented. It talks of a fiscal deficit range of 5.2% to 6.1% depending on whether or not we choose to act.

There are basically seven issues that come to mind here. First, the committee talks of reducing the gap between the economic cost and issue price of foodgrains. This is not really practical because both the policies are guided by different motivations. The ministry of agriculture fixes the minimum support price to ensure that the farmers get a better income every year, while the issue price has been pegged ostensibly to protect the vulnerable sections. Increasing the issue price is a logical option which has always been there, but has been desisted from on the grounds of protecting consumers from food inflation, especially when it is running at a double digit level. Therefore, the suggestion is just as logical and impractical as saying that the government should run a close-ended procurement programme.

Second, the Committee talks at length about the fuel subsidy being a sore thumb. It does not recognise that while the reason for not raising prices could mainly be political, there has been a substantial inflation buffer provided through this route. Increasing prices are seriously inflationary and not only with a short-term effect, as claimed in the report.

Third, it is a bit too pessimistic on disinvestment and concludes that not more than R10,000 crore would be garnered, which again can be contested. The government has already announced a fairly aggressive programme for disinvestment, which will probably take us closer to the targeted amount of R30,000 crore.

Fourth, the committee has spoken of how the fuel subsidy bill will be exceeded as the targeted amount of R43,500 crore has already been nearly exhausted. An issue missed is that the budget had assumed a price of $115/barrel for the year, and the price has been lower for most of the year. Clearly, the budget had gotten its numbers wrong.

Fifth, the Committee talks of ensuring there is no constraint on using MGNREGA to protect farm workers. It,

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