| Drought may delay India fuel reforms: Montek |
NEW DELHI The drought threatening India due to elusive monsoon rains will make it politically harder for the government to raise prices of subsidised fuel, delaying a reform urgently needed to rein in the country’s fiscal deficit, Montek Singh Ahluwalia, deputy chairman of the Planning Commission, said.
So far India’s monsoon rains are 22 per cent below average and are unlikely to pick up enough to avert a drought, which could dent both crop output and rural incomes and increase reliance on subsidised fuel such as diesel to irrigate farmland. It will inevitably hit growth, warned Ahluwalia, making it unlikely that Asia’s third-largest economy will do any better in 2012/13 than it did in 2011/12, when it recorded its slowest rate of growth in nine years. The critical pressure point for the government is its fiscal deficit.
“Between the economics of what needs to be done and the politics of what is feasible there is usually a gap,” Ahluwalia, one of India’s best known bureaucrats, said in an interview on Monday. “That gap increases if there is a drought.”
Last year, India overshot its deficit target due to slowing growth and increased spending because of higher fuel and fertiliser subsidies.
The government has promised to narrow the fiscal gap in 2012/13, in part by increasing the prices of subsidised fuels, especially diesel, which have not been revised for a year. New Delhi has said it plans to reduce spending on subsidies to under 2 per cent of the GDP this year from 3.2 per cent last year. But, Ahluwalia, a close aide of Prime Minister Manmohan Singh, said the government may have to spend more in rural areas to shore up incomes if the rains do not pick up in coming weeks.
“In my view there is a good economic case for adjusting oil prices,” he said said. “It’s also no secret that these things become politically difficult, and maybe a little more difficult in a drought year.”
Over half of the country’s population depends on agriculture for a livelihood. And while Singh’s Congress party does not face a national election until 2014, cutting subsidyies during a drought would be seen callous by poor rural voters who have been hit hard by inflation running over 7 per cent for the past two years.
Ahluwalia said a drought could shave up to 0.5 percentage point off India’s GDP, which he said is expected to grow by between 6.0 and 6.5 per cent in 2012/13.
Reuters
|
 |
|
|
| NEWS UPDATES |
|
|
|
|
|
|
