The finance minister can start tackling the fiscal deficit by ruthlessly cutting down revenue subsidies which do not benefit the poor
Notwithstanding the contretemps caused in the governing coalition following the recent reform-oriented policy announcements, Prime Minister Manmohan Singh’s signal is to not back down. On Friday, the PM accepted the resignation of the ministers of the Trinamul Congress and there are indications of more follow-up measures.
His address to the nation was a much-needed effort to explain the rationale for the steps taken so far and point to the critical juncture the economy would reach if some steps were not taken on an urgent basis to address key parameters.
All things considered, however, it is also necessary to plug the humongous corruption that leads to leakages from the national pool and the guzzling of subsidies running into thousands of crores on an unmerited basis. The expenditure of the ministries of the government, and their departments and sub-departments, can also be immediately trimmed by 20-30 per cent.
Steps such as these would help cut subsidies significantly, and Mr Chidambaram can conceivably achieve some key goals within the time-frame of October 31 he has set to improve the basics. Attaining these is likely to persuade the RBI, when it announces its mid-term review at the end of October, of the government’s seriousness in tackling the fiscal deficit, leading the central bank to cut interest rates. This would, in turn, spur investment.
One of the interesting issues Mr Chidambaram is going to tackle is that of attracting more household savings into the capital market and he would do this through Sebi. This would require tremendous political will to act against corporates with political clout and the regulatory officials who collude with them.
In recent times, people are preferring to put their savings into gold, although it is selling at an irrationally high price, because the stock markets are not really considered safe for their money. Clause 49 of the Listing Agreement of the stock exchanges has been ineffective in obtaining remedies for corporate governance issues. As a survey by the Institutional Investor Advisory Services has revealed, key issues like sale of business, intra-group mergers and issue of preferential warrants are not adequately dealt with by the regulations. Such malafide actions are rampant, particularly among the promoter-dominant listed companies that form 72 per cent of the BSE 500 companies. Mr Chidambaram could take the help of investors’ associations to rectify this situation.
The finance minister can start tackling the fiscal deficit by ruthlessly cutting down revenue subsidies which do not benefit the poor. It is estimated that these subsidies have touched over Rs 2 lakh crore in five years. As for corruption, a useful way could be to take a look at suggestions to hand over the exploitation of natural resources to independent commissions.