At a hurriedly convened press conference aimed at containing the escalating political storm over last week's increases in prices of PDS commodities and urea, Kelkar said that the decision was made with a view to "correct the fiscal imbalance and ensure long term food security for the country".

Painting a rather grim picture of the country's fiscal health, the finance secretary said that gross borrowings of the government had already exceeded targets. As on January 11, borrowings stood at Rs 81,453 crore as against a target of Rs 79,000 crore.

Money supply (M3) had been growing at over 20 per cent in comparison with the target of only 16.5 per cent last year. And what is more disturbing was that reserve money growth was climbing at an inflation-fueling 12 per cent as on date as against two per cent in the previous year. "Atthis rate," Kelkar admitted, "it will not be possible to stick to the fiscal deficit target of 5.6 per cent of the GDP." Replying to a query, Kelkar ruled out rollback of the hike in administered prices, saying the rise would not be inflationary and was required to cut subsidies which had reached "unsustainable levels". He added, "These revisions were normal, undertaken after the upward revision in the minimum support prices of wheat, rice and sugarcane. It would send the right signals to the market."

The inflation rate was expected to be directly impacted by around 0.2 per cent of the Wholesale Price Index (WPI) on account of the mark-up in prices of rice, wheat and sugar. The urea hike might cause the WPI to go up by another 0.4 per cent. The finance secretary quoted a RBI study to claim that the real impact on prices would be much less. The price hike would reduce the fiscal deficit by around Rs 3700-3800 crore in a full year, thereby reducing fiscal deficit by around 0.25 per cent. The thumb rule,according to the RBI study, was that the inflation rate stood reduced by twice the amount of reduction in fiscal deficit. Thus, he argued, the inflationary impact of the price rise would be countered by a fall in fiscal deficit.

Kelkar said the benefit of the hike to the exchequer in the remaining months of this fiscal would not be significant as it was expected to bring about savings of only Rs 300.

Further, he stressed that the urea price had been hiked at a time when the demand was low, as the rabi demand peaked in the months of November-December. Besides, the hike had been resorted to at a time when the inflation rate was also at a 5-year low, of 4.4 per cent, to ensure that the impact was minimal.

The secretary disclosed that the cabinet had instructed the Food Corporation of India (FCI) to review its working with the view to bring down the high economic cost of PDS foodgrains. "There is adequate room for reduction".

As against the economic cost of wheat of Rs 8.08 per kg, it was being sold at Rs3.25 per kg in PDS for below poverty line (BPL) people and Rs 6.50 for those above poverty line (APL). In the case of rice, the economic cost had been worked out to Rs 10.76 as against the PDS price of Rs 4.52 per kg for BPL and Rs 9.05 for APL in the PDS. The subsidy element was as high as Rs 5 to Rs 6 per kg for wheat and rice under BPL category, he said.

Kelkar pins hopes on divestment
MUMBAI: The finance secretary on Sunday stuck to the grandiose target of mobilising Rs 8000 crore through the disinvestment process. The budget had estimated a mop-up of only Rs 5000 crore. According to figures shelled out by him, The IOC-ONGC-GAIL equity swap would bring in roughly Rs 5200 crore. All clearances have been given for the swap and it will be registered in the government's books shortly.The Nalco equity recast, according to Kelkar, will net Rs 480 crore for the central exchequer and the exercise will be completed in this fiscal.Kelkar expects VSNL's GDR issue to collect roughly Rs 1000 crore. Theroadshows have begun and the book building process is currently on. The government has already netted Rs 225 crore out of disinvestment in Concor. The sell-off in IOC is expected to bring in Rs 600 crore. Even Gail is planning a mop-up, independent of the swap. And the government plans to ride piggy back. Target mobilisation: Rs 400 crore.