With the Congress party suffering severe reverses in the state Assembly elections, the UPA-II government is expected to lean further on populist policies and hold back reforms to appease its restive allies. Senior government officials expect this approach to be reflected in the Budget 2012-13, which will be presented on March 16.
EDITOR'S VERDICT:What the poll results mean for the economy
"There is a risk that the government might opt for a more populist Budget and rethink any possible decisions to trim subsidies - which could hurt their support base at the grass-root level," said Radhika Rao, economist at Forecast PTE in Singapore.
Battered by a battery of corruption scandals, the Congress-led central government had put economic reforms on the back burner. It was expected that sizeable gains in the state elections would have allowed the Central government to push through reforms to revive the economic growth.
"Though the poll results are for a change, we are worried over their impact on the upcoming Budget as fractured politics may have a bearing on the government's reform agenda," Genpact vice-chairman Pramod Bhasin said.
"We hope the ruling UPA coalition at the Centre
will respond positively and constructively to people's aspirations and push ahead with second generation of reforms expeditiously," said Rajkumar Dhoot, president of Assocham.
However, this does not appear to be happening. "The decision to review the ban on export of cotton on the very next day after the results were announced clearly shows that the government has to go out of its way to keep its allies happy," a senior commerce ministry official said.
Textiles secretary Kiran Dhingra said the decision had been taken as currently textile mills are carrying their lowest stocks ever in the past decade.
"Given the tight liquidity position in the industry
, it is not possible for them to procure larger quantities to cover their future requirement at this stage," she added.
Despite the economic rationale, the government has decided to review the decision due to pressure from agriculture minister Sharad Pawar.
"It's time for Congress to perform or perish," said Arun Kejriwal, strategist at Mumbai-based advisory firm KRIS. "If this Budget doesn't give any direction to the economy, Congress is likely to find itself in a mess in 2014 because next year's Budget would be too late to do anything substantial for the economy," he added.
A petroleum ministry official said that the losses of public sector oil companies are mounting and it is imperative to increase the prices of petrol, diesel, LPG and kerosene but it is unlikely that the government will bite the bullet at this juncture. As a result, the government will be forced to bear a bigger burden of the Rs 140,000 crore of loss in revenue to the oil companies.
With the price of the Indian basket of crude oil imports shooting past the $123-a-barrel mark and the elections in the five states coming to end, the public sector oil companies are looking at hiking the prices of petrol and diesel by Rs 4-5 a litre.
Trinamool Congress chief Mamata Bannerjee and Maharashtra strongman Pawar are strongly opposed to any hike in the prices of petroleum products and this will make it that much more difficult for the government to reduce its subsidy burden.Courtesy: Mail Today