A Giveaway That Wont Go Away
A few weeks ago, newspapers carried an item that the government had allowed the State Trading Corporation to conduct market-price interventions in tobacco. Together, with a host of other Cabinet decisions, the news item looked fairly innocuous, both in its pronouncement and display. The government spokesman too did not add much emphasis and the event was (like many others before it) consigned to the realm of public memory.
The truth, as senior government officials (and the file notings) reveal, is quite the contrary. First, it was a sad story on the state of economic reforms in the country. Second, it demonstrated the arm-twisting abilities of a coalition partner even in a regime which enjoys a comfortable majority in the House. Thirdly, the inability of the Prime Minister to stand up on the issue has set an unfortunate precedent, which would nail the initial efforts of finance minister Yashwant Sinha to cap subsidy payments.
It was only the third time that the government had permitted market intervention for a tree crop. The basic motive being to provide price support to tobacco farmers. The last time round it was the then finance minister V P Singh who directed market intervention in the case of Consumer Protection Act. On that occasion too, like it was for tobacco, the government had succumbed to the regional lobby from Kerala.
The argument of those ranged against this was that it would inevitably lead to stocking of the product with STC, which in turn would be unable to offload the product and end up with a net fiscal loss. This would at the end of the year be transferred to the commerce ministry and eventually be absorbed by the national exchequer.
In the case of tobacco, the opposition was even more resonant. It was argued that worldwide there was an increasing campaign against smoking and providing a support price was not necessarily the need of the hour. It was also felt that it would open the doors for similar demands from other growers.
Yet Andhra Pradesh's ebullient Chief Minister Chandrababu Naidu was not to be denied. Naidu (ironically dubbed as the best reformer) mounted relentless pressure on the Centre and it had to eventually cave in. The fact that the decision was political was clear, when stout opposition from senior ministers present in the Cabinet meeting were ignored. The incident in fact prompted one of the insiders to remark that the government should actually pronounce that it had put the brakes on reforms.
"To continue with these kind of decisions and then not report any results down the road would do the entire process of economic reforms singular damage. It is better for the government to simply announce that it had suspended reforms for the moment," the official remarked.
The fear that it would be the final nail in the fiscal coffin of the Centre has become amply clear in the weeks following the Cabinet decision. Demands have come from growers of kinnu, grapes and mangoes for similar price support. And, worse some of the requests are from state governments ruled by the Bharatiya Janata Party _ the dominant member of the present coalition. And, anybody aware of government functioning will know that it is next to impossible to reverse a giveaway. In that case, while the fiscal meter has begun to tick and it will have to be seen as to how the government, having opened the Pandora's box, rebuffs similar demands in future.