Adieu to the soft State?

DESPITE ALL THE fury and noise over the reduction in food and fertilizer subsidies, the Union Budget for 2000-2001 was approved by the Lok Sabha on Thursday. That the Vajpayee Government showed unrelenting grit in the face of persistent demands from the Opposition as well as its partners in the National Democratic Alliance for a rollback on subsidies can be construed as a vindication of its position that a none-too-comfortable fiscal situation coupled with an unwarranted escalation in subsidies over the years called for resolute correction.

The smooth passage in the Lok Sabha of the Finance Bill cannot, however, obscure the fact that political parties with all their divergent approaches towards the management of the national economy are, by and large, united in their misguided philosophy that fiscal policy must necessarily be based on ``give-aways'' for all sections of the population, rich or poor as the case may be. The Congress(I) which can legitimately take credit for pulling the country out of an economic precipice in 1991 seems unfortunately to be drifting away from the hard rationale of economic reforms. It is indeed amazing that a party which set out during 1991-96 to wind down unsustainable fiscal deficits, is now enacting a volte face opposing moves to cut down subsidies to all except the ``Below the Poverty Line'' population and to restructure the vast inheritance of inefficient public enterprises.

There is no question that fertilizer subsidies have outlived their utility. Apart from serving to perpetuate high-cost and mismanaged fertilizer units in the public sector, they have produced distortions in crop management. The case for food subsidies, of course, stands on a different footing since it has much to do with the fundamental question of food security for the poor. Nevertheless, the fact that procurement prices, under pressure from the farm lobbies, have been raised year after year, without corresponding revisions in issue prices for foodgrains under the Public Distribution System, cannot remain uncorrected. The Finance Minister, Mr. Yashwant Sinha, has not yielded to the argument that because of drought conditions which have arisen in a few States, the question of food subsidies must be reconsidered. There is wisdom in the stand that drought relief and measures for linking employment generation with subsidised food distribution should not be mixed up with the question of rationalising subsidies as a whole.

The critics of Mr. Yashwant Sinha's Budget who argue that the tax proposals are mainly directed against the corporate sector are perhaps justified in holding the view that the investment climate may be vitiated by the hike in the tax rate on dividends distributed by companies. The point, however, is that at a time when the pressure on the fisc is mounting owing to increasing commitment towards defence spending, drought relief and assistance to State Governments beleaguered by debt-servicing burdens, the Finance Minister has rightly chosen not to dilute the proposal regarding dividend tax.

Nor can Mr. Sinha be taunted with the accusation that from being a ``rollback'' artiste, he has now emerged as an adamant dogmatist. For, it was only last Wednesday that he announced a slew of fresh fiscal incentives for IT, housing and pharmaceutical sectors. That he has positively responded to the need for research and development to be activised and for housing to be boosted as a leading thrust area in the economy has to be kept in perspective. But now that the Budget has virtually emerged unscathed from Parliament, Mr. Sinha & Company will have to wrestle with the twin tasks of vigilant expenditure monitoring and revenue mobilisation without hassles.

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