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Need food, farm, fertilizer subsidy reforms to improve fiscal position: Finance Secretary T V Somanathan

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Finance Secretary T V Somanathan on Tuesday underlined the need for improving the fiscal position of the government through reforms in farm, food and fertilizer subsidies so that additional funds can be generated for development of infrastructure and education system. Somnathan, who is Expenditure Secretary, further said that farm, food and fertilizer reforms are administratively easy but politically difficult in view of the ramifications. On the other hand, he added, reforms in education and infrastructure are easy to announce but difficult to implement administratively as cooperation of states and other stakeholders becomes necessary.

Somanathan made these comments with a disclaimer that the views expressed were personal and not of the government.

At the present juncture, he said, “we have two main kinds of buckets of reform…first, I think, if we have to set our fiscal house in order and also provide for the many things that governments legitimately should provide. We will need to reform some of our subsidies — farm subsidies, food subsidies, fertilizer subsidies. Some of them are intertwined with each other.

“The second, I would say, we need to improve the efficiency of public expenditure on education, health and infrastructure….I am leaving out a lot of financial markets, trade and other issues. They are important and not neglecting them.”

Speaking at a panel discussion organised by economic think-tank National Council of Applied Economic Research (NCAER), the Finance Secretary said that the government is undertaking reforms after wide consultation.

Defending the government, he said, “It is not a fair charge that experts are not consulted.”

Observing that one must not be frustrated by delays in reforms, he said, “one must not assume that if something doesn’t happen, then it will never happen.”

Citing an example he said, “in 1981 when I was a student of Economics, if someone had said in a classroom that India would abolish industrial licensing, I don’t think that would have been considered a serious proposition…but it happened 10 years later.”

Similarly, he said, if someone in 2009 or 2010 had said that the government would invert the industrial policy of the 1950s and announced exit from all sectors but four strategic sectors, it might have seemed unlikely. However, he said, it was announced in this year’s Budget.

On financial sector reforms, Somanathan said the government has already announced privatisation of two public sector banks and one public sector general insurance company.

Most of the public sector banks would be privatised eventually as announced by the government, he added.

With regard to nagging issues related to Goods and Services Tax (GST), the Finance Secretary said many of the glitches have been fixed.

He expressed hope that the revenue collection from GST would see improvement going forward.

Speaking during the virtual seminar, former vice chairman of Planning Commission Montek Singh Ahluwalia suggested that the GST Council should undertake a comprehensive review of the taxation system which was introduced four year ago.

Observing that the government is moving toward protectionism, Ahluwalia also said, increasing custom duties on some items is in a way retrograde.

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