SUNS  4366 Wednesday 3 February 1999

New Delhi, Feb 1 (IPS/Dev Raj) -- Angered by a massive pre-budget cut in food subsidies for the poor and fertiliser for farmers, key regional partners of the right-wing, Bharatiya Janata Party (BJP)-led government are threatening to withdraw support.

The subsidies, introduced by the left-wing United Front government two years ago guarantee that 40 percent of India's billion-odd people who live below the poverty line can buy wheat and rice at half the price fixed by the government through the public distribution system (PDS).

Also slashed towards the weekend were subsidies for sugar and fertiliser sold under the PDS and for Liquid Petroleum Gas (LPG) widely used as cooking gas.

The Telugu Desam Party (TDP), which rules southern Andhra Pradesh state, responded by delivering an ultimatum that it would withdraw the 'outside' support it extends to the BJP-led government unless the cuts in subsidies were rolled back.

For Andhra Pradesh Chief Minister, Chandrababu Naidu, already embarrassed by the BJP's inaction over attacks by fundamentalists on Christian missionaries, the cut in subsidies for the poor and farmers may prove to be the last straw.

Andhra Pradesh which has a history of providing subsidised rice for its people will be forced to spend an additional 100 million dollars over the 185 million dollars to keep the scheme going at present levels.

Naidu who left the United Front to provide support for the BJP-led coalition of Prime minister Atal Behari Vajpayee, last year, has up until now desisted from criticising central government in the interests of stability.

Now he has joined other allies, notably the Trinamul Congress led by Mamata Banerjee in West Bengal state and the AIADMK of Jayaraman Jayalalitha in demanding a roll-back on the cuts in subsidies. The allies say they were not even consulted.

Protests at the reduction in subsidies on fertiliser have come from the northwestern states of Punjab and Haryana which together form the 'granary' of India and are major producers of wheat and rice.

Punjab Chief Minister Prakash Singh Badal stopped short of saying that his Akali Dal party would withdraw support to the Vajpayee government but said farmers in his state are going to be severely affected.

But on Sunday, the government defended the cuts as necessary to cover a yawning fiscal deficit now estimated to reach a massive 25 billion dollars by the time Finance Minister Yashwant Sinha presents the annual budget next month.

When the chief of the World Economic Forum, Claude Smadja had predicted at the India Summit here in December that the fiscal deficit would touch 7 percent this year Sinha had retorted that it would be contained at 5.6 percent.

But speaking at a press conference on Sunday Finance Secretary Vijay Kelkar said the deficit would definitely exceed that figure but declined to say by how much.

Kelkar said the increase in administered prices on foodgrains, sugar and urea would save the government $950 million. "This will result in a reduction in the fiscal deficit by 0.25% and bring inflation down by 0.5 per cent."

Kelkar claimed that the cuts were in fact being done to help the poor. "The government's move is aimed at containing inflation which hurts the poor most."


But other economists are not convinced.

Says Arun Ghosh, a former bureaucrat and member of the Planning Commission, "Cutting subsidies would mean a rise in inflation since government rates of procurement would go up."

Ghosh said there was a mistaken belief that farmers and the poor in this country were being heavily subsidised when in fact the urban rich benefited from hidden subsidies including the massive government expenditure on infrastructural development.

But Ashok Desai, economic advisor to the government said the subsidies on PDS which cost the government $2.6 billion in the current fiscal year could not go on because grain was being diverted into the black market.

According to Desai, large amounts of PDS grain were even finding its way into Bangladesh. "We are subsidising Bangladesh," he said.

But Ghosh said the diversions were possible because the poor are yet to be identified except in Andhra Pradesh and one or two other states and given separate ration cards under the 'two-tier' system introduced by the previous United Front government.

According to government estimates, half of the country's poor people live in the BIMARU states. BIMARU means sick in the Hindi language and is also the acronym for Bihar, Madhya Pradesh, Rajasthan and Uttar Pradesh where PDS coverage for the poor is less than 10 percent.

Says D. Raja, spokesman for the Communist Party of India (CPI), "the storm of protests now being heard over the cut in subsidies comes from middle-class beneficiaries of diverted grain - but that is no reason why subsidies should be cut."

The CPI, which sits in the Opposition in Parliament but rules southern Kerala, West Bengal and north-eastern Tripura states is set to launch a nation-wide agitation later this month to press a roll-back of PDS prices on essential commodities.

Raja said the government should find other means of covering the fiscal deficits rather than by robbing the poor. In the first place the deficits were brought on by pro-rich policies and through the
"reckless" nuclear weapons tests last year.

"The fact that the Confederation of Indian Industries (CII) has welcomed the cut in subsidies shows that they were intended to benefit rich industrialists rather than poor farmers," he said.