The Kelkar test

The panel's suggestions should make the government revisit the drags on the economy

The range of fiscal deficit numbers projected by Vijay Kelkar— from the no-reform scenario of 6.1 per cent of the GDP to 5.2 per cent with reform — will make it easier to map the Centre's moves on reforms this year. Since Prime Minister Manmohan Singh has reiterated that he intends to stay the course, the benefit of the Kelkar standard is that it sets the stage for the PM's words to be measured against his actions.

For the moment, however, attention has focused on the sharp cuts the committee's "road map for fiscal consolidation" has recommended in petro subsidies. While the finance ministry has moved in quickly with reassuring noises, it is worth pointing out that both Kelkar and Sanjiv Misra, also on the panel, have served a long innings in the ministry; they are well aware of the constraints posed by governance. Their recommendations should then serve as an opportunity to revisit the burdens on the economy, sooner rather than later. At 2.2 per cent of the GDP, as Kelkar projects, the cost is Rs 1,80,000 crore this year from the oil subsidy — more than the plan expenditure for all social sectors combined. While there are reasons for a government that needs to keep an eye on allies, and is not so surefooted in the numbers game, to defer the price hike till later, as Kelkar points out, delays will make "the consequences and pain even worse (with) consequences for much slower growth, rising unemployment, and higher inflation". Since government-mandated reports are usually economical with words, this is disconcerting stuff.

Essentially, the report has made clear that the government needs to engage in a comprehensive dialogue with the people on the challenges ahead. This will be necessary even to work on other expenditure measures, including the suggested cuts in the plan budget. The implications of the cuts, while protecting the programmes for the most vulnerable, have to be made clear and that is best done by taking on more reforms like imposing market-linked rates of interest on delayed payment of taxes, especially advance tax. Some of the other reforms, like the changes in the Direct Tax Code and changing of indirect tax rates to harmonise them with GST, are already in the works. Since the Kelkar package relies little on new legislation, it gives the government the chance to show that, even in the present circumstances, it can deliver the goods for the economy.

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