Economy Aug 1, 2012
A drought in India is intensely hated by the common people and loved by the politicians. Commoners hate it for obvious reasons-they are the most affected.
Politicians love it as it gives them a chance to wrangle over partiality, neglect and apathy, to score a few brownie points as they make their presence felt in front of the voters.
And clear signs of a drought have finally emanated, not from the trusted Met department but from the government.
The centre has announced a Rs 2,000 crore drought relief for five states, and a 50 percent diesel subsidy, said a report in Mint.
The burden of diesel subsidy will be shared by the state and central governments, the report said adding that though the measures are a sentiment booster for the affected farmers it will further pressure the fiscal situation.
Coincidentally, the announcements came on a day when the Reserve Bank of India cautioned against about the twin deficit risk the economy faces.
Financing the fiscal deficit from domestic saving crowds out private investment, thus lowering growth prospects. This, in turn, deters capital inflows, making it more difficult to finance the current account deficit, it had said in its policy statement.
"Failure to narrow twin deficits with appropriate policy actions threatens both macroeconomic stability and growth sustainability," it warned.
The central bank, in its macro economic report released a day earlier, had extensively dwelt on the subsidy issue.
"Capping the subsidies within the budgeted limits would necessitate steps to allow the pass-through of international crude oil prices to domestic prices, failing which it would be difficult to achieve the overall deficit targets," the report said.
It said the Rs 40,000 crore compensation for oil companies announced in the budget will be inadequate, as there is a Rs 38,500 crore spillover from the January-March quarter. Moreover, the under-recovery, or the losses from subsidised selling of diesel, kerosene and LPG, in April-June has already hit Rs 47,800 crore.
The demand for diesel from the agriculture sector increases during a drought as farmers use the fuel in pump sets for irrigation. A power deficit situation will further add to the demand as the fuel finds usage in generation sets as well.
The monsoon situation is worrisome, no doubt.
The rains have been 22 percent below normal as on July 25. According to NCDEX's Monsoon Meter, the latest sowing data available from the ministry of agriculture shows shortfall in area sown across all the major categories of kharif crops.
In case of coarse cereals, the area sown is around 24 percent less, pulses 22% and oilseeds 0.9%.
With all this, the government will have to take steps to address the genuine concerns of farmers.
And Tuesday's measures are just the beginning. The central and state governments will vie with each other for doling out goodies which will be lapped up by the undeserving.
So tighten your seat belt and gear up for a rough ride ahead. And, meanwhile, wish politicians a happy drought.
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