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Amid slugfest with BJP, PM hints at hiking fuel prices, curbing gold imports
-The Times of India


NEW DELHI: The Prime Minister on Friday called for a political consensus on "more difficult reforms", indicating that the government was considering a cut in fuel subsidy, which would mean higher petrol and diesel prices, and bringing in measures to curb gold imports.

Making a statement in the Lok Sabha on the current economic situation, Manmohan Singh admitted that the current account deficit had gone up sharply and this was affecting the value of the rupee. A cut in subsidies would help in balancing revenue and expenditure and cutting the current account deficit (CAD).

He said the best way to contain the deficit was to spend carefully, "especially on subsidies that do not reach the poor, and we will take effective steps to that end". Talking about the "unsustainably large" CAD, he added, "Clearly we need to reduce our appetite for gold, economize in the use of petroleum products," once again hinting at tough measures in this direction.

Hopes of any political consensus actually emerging from the PM's intervention on the economy, however, receded rapidly as Singh and opposition leaders got into an acrimonious exchange in the Rajya Sabha, accusing each other of being responsible for the country's woes.

Replying to clarifications on his statement, the PM uncharacteristically tore into the opposition, saying nowhere else did the main opposition party rush to the well of the House accusing the PM of being corrupt. He emphasized that building consensus was not just the responsibility of the government but also that of the opposition. He said the BJP had never reconciled itself to the fact that it was voted out of power in 2004.

This invited an immediate retort from leader of the opposition Arun Jaitley, who said the opposition too had not heard of any democracy where monetary inducements were used to win a vote of confidence. This led to bedlam with Mani Shankar Aiyar demanding that Jaitley be expelled from the House. He said Jaitley was a liar which enraged BJP MPs.

Earlier, in his statement to the Lok Sabha the PM admitted that domestic factors had compounded an adverse global situation in weakening the rupee, but insisted that the situation is likely to improve in the coming months. Maintaining that this "optimism" was not misplaced, he said the effects of a good monsoon, the kicking in of the effects of reform measures taken recently and, ironically, the depreciation of the rupee itself would help the economy recover.

While the PM did not elaborate too much on what the domestic factors responsible for the currency crisis were, he did mention "a collapse in iron ore exports" as one of them without explicitly referring to the Supreme Court imposed ban.

Singh expressed confidence that the fiscal deficit would be kept below the target of 4.8% of GDP and that the current account deficit (CAD) would not exceed $70 billion in the current year compared to $90 billion in 2012-13. Over the medium term, he said, the effort would be to keep the CAD to about 2.5% of GDP against the 4.8% actually registered in 2012-13.

Arguing that some of the fall in the rupee's exchange rate was "natural" given the relatively higher inflation rate in India than in the US, Singh said the depreciation "can be good for the economy as this will help to increase our export competitiveness and discourage imports". Some export sectors, he said, had already become more competitive and the full effects in terms of boosting exports would be felt in the rest of the financial year.

The fundamentals of the Indian economy were still strong and this would ultimately lead to a stabilization of the rupee, Singh hoped.

Ruling out any capital controls or reversal of reforms, the PM on the contrary said the government would move forward on reforms. He, however, conceded that "we have the more difficult reforms to do such as reduction of subsidies, insurance and pension sector reforms, eliminating bureaucratic red tape and implementing Goods and Services Tax. These are not low hanging fruit and they need active political consensus."

Lamenting the fact that many reform measures are held up for lack of political consensus, he added: "We need to forge consensus on such vital issues. I urge political parties to work towards this end and to join in the government's efforts to put the economy back on the path of stable, sustainable growth."