The Hindu : Andhra Pradesh News : 'Free power policy will boomerang'

Online edition of India's National Newspaper
Wednesday, Aug 25, 2004

Andhra Pradesh

Andhra Pradesh

'Free power policy will boomerang'

By Our Staff Reporter

HYDERABAD, AUG. 24. The Planning Commission member, Abhijit Sen, has said that the free power policy of the State Government will `boomerang' on it in the near future.

"There is no worse way of offering sops than free power," he said and added that "the political costs will outweigh whatever political benefits accruing from free power in the short term itself."

"Populism does not happen only when you give the poor but also when you give the rich," Prof. Sen said giving the examples of the Fifth Pay Commission and tax breaks as populism directed towards the rich.

Rise in rural debt

Delivering a lecture on `Rural renewal: options and constraints" at the Administrative Staff College of India here today, Prof. Sen said that between 1961 and 1996 there were only two years when the "terms of trade" were against agriculture. But since 1996 "terms of trade" had been against agriculture for five years. This had led to a large rise in rural debt and sharp declines in calorie intake and rural employment.

The present Government had stressed on rural development and announced doubling of rural credit, employment guarantee scheme through the `Food- for-work' programme and finishing irrigation projects. The Planning Commission was expected to play a central role in directing investments in the rural areas and the recent Budget had earmarked Rs. 10,000 crores for this purpose.

Constraints

But there were two large macro-economic constraints routing rural investments through the Planning Commission, Prof. Sen pointed out.

The first constraint was that the economy was growing at an average of six per cent a year while the Plan assumed an average annual growth rate of 8 per cent. Over the five year Plan period this had implied a total growth of 35 per cent in the GDP instead of the projected 50 per cent, leading to a shortfall of 15 per cent of the GDP in resource availability.

Rural investments

The second macro-economic constraint was the Fiscal Responsibility Act which set down that revenue deficit would be eliminated by 2008 from 4 per cent of the GDP at present. This could be done either by raising income through tax collections or by reducing expenditure. In the event of tax collections remaining static, expenditure would be hit, including Plan expenditure.

A slower growth in the economy combined with a squeeze on expenditure would make it difficult to sustain rural investments, Prof. Sen cautioned.

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