Government gets warning on populist programmes
New Delhi, March 8: The Reserve Bank of India gave enough indications that the nation cannot afford any more populist schemes.
RBI Governor Duvvuri Subbarao said today that "we must recognize that the government does not have the fiscal capacity to continue entitlements and welfare programmes at this level." Subbarao was speaking at meeting of the bankers in New Delhi on Friday.
Subbarao's warning should be seen in the background of increasing subsidy bill that is telling on the budget deficit. In fact, Finance Minister P Chidambaram today presented supplementary demands and sought Parliament's approval to spend an additional Rs 49,715.54 crore mainly to meet the outgo on fuel, fertiliser and food subsidies in the current financial year.
The
concern
of
the
RBI
can
be
seen
in
the
series
of
action
since
early
this
week.
It
has
taken
serious
note
of
the
CAG
report
on
agricultural
debt
waiver
and
debt
relief
scheme
of
2008,
and
local
area
banks
and
has
asked
for
complete
details
on
farm
loans
from
all
scheduled
commercial
banks.
Prime Minister Manmohan Singh's government had announced a debt waiver for farmers worth around Rs.52,000 crore across the country in 2008, a move analysts say helped the United Progressive Alliance (UPA) government win the 2009 general elections.
But the Comptroller and Auditor General (CAG), in its report tabled in parliament on Tuesday on the "Implementation of Agricultural Debt Waiver and Debt Relief Scheme, 2008", said there were irregularities in at least one in five cases.
India is on track to trim its fiscal deficit to 5.2 percent of GDP in the current fiscal year, a narrowing that several months ago seemed unlikely, and hopes to cut that further to 4.8 percent of GDP in the fiscal year that starts in April.
But the subsidies on various schemes are keeping the deficit at an unhealthy level and fuelling inflation.
Subbarao
said
today
that
many
of
the
supply-driven
causes
of
inflation
can
be
corrected
by
appropriate
policies.
"Accepting
a
new
normal
for
inflation
not
only
has
no
theoretical
or
empirical
support,
but
entails
the
moral
hazard
of
policy
inaction
in
dealing
with
supply
constraints,"
Subbarao
said.
However, the RBI seems to have accepted the political compulsion and may go along with the government.
"The 'new normal' argument ... is that it will be politically difficult to reverse these entitlement programmes, they are here to stay, and that India should accept wage-price pressures as a structural feature and adjust its inflation goal accordingly," Subbarao said.
OneIndia News