Centre takes one step forward, two back - Views on News from Equitymaster

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Centre takes one step forward, two back

Mar 17, 2000

One step forward. Two back. Well that’s what the recent policy measures and indications of the government indicate. The centre has approved a voluntary retirement scheme (VRS) for public sector units. On the other hand, it is contemplating a roll back of the cut in subsidies. Not only that, the centre has also hiked the subsidy component by raising the support price for wheat. The government has proposed an 11% cut in the subsidies bill during the year FY2001. However, these two measures – partial roll back of the cut and hike in food subsidy, will more or less undo the process of limiting the growth in subsidies.

The one step forward is the centre’s approval of the VRS scheme for the central public sector units. The move IF implemented will go a long way in increasing the competitiveness of the public sector units. In case this leads to a rise in profitability (it probably should) the government's hidden subsidies (a multiple of actual subsidies) too will decline over a period of time. This would augur well for the central government finances.

However, in totality these policy initiatives will have the effect of delaying the process of reforms pertaining to subsidies. This is mainly due to the procedural hurdles the government is likely to face while implementing the VRS scheme. On the other hand, the effect of the hike in subsidies will be immediate.

Coalition politics. That’s the reasoning for these policy measures. However, there is a need to ‘bite the bullet’ and this is recognised by all. The government needs to contribute to this by stepping up the disinvestment process and also by digging in its heels as far as the subsidies issue is concerned.

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