Subsidies should be targeted better: Sinha

Bringing the UPA government under fire for haphazard implementation of various development and economic programmes, former Union Minister for Finance Yashwant Sinha said on Wednesday that subsidies could not be ruled out totally in a developing economy.

“Some subsidies will continue to be important, but they should be targeted better by identifying the right beneficiaries. The problem with Aadhaar was that it was not implemented in a way aligned to the country's security interests or after proper verification of those who needed subsidies,” Sinha said, while speaking at an industry interaction meet on 'Economic Challenges Ahead' organised by the FKCCI in Bangalore.

On one side, he said, the UPA government wanted half the population to be covered by the National Population Register and the remaining under Aadhaar. “This results in a huge waste of taxpayer money,” Sinha said, adding that if the BJP returned to power at the Centre it would take a closer look at the glitches in the implementation of Aadhaar.

Stressing the need for investment-led growth instead of consumption-led growth, Sinha said, “From 2003-04 to 2007-08, we saw record growth rate of near 10 per cent. How? When I assumed charge as finance minister in March 1998, the growth rate was less than 5 per cent. There were huge challenges like high inflation, economic sanctions, the dotcom collapse and the East Asian crisis. We faced the challenge of keeping inflation as moderate as possible so that we could create space for reducing interest rates.

In those days, the administered interest rates (AIR) were the determining factors in deciding the direction of the market. During our tenure, we gradually brought down AIR from 14 per cent to around 8 per cent. In the market, we saw to it that borrowing could be done at around 6 per cent.  This helped retire inflation substantially. I even started a corporate debt restructuring scheme which helped corporates to approach banks and borrow at lower cost.”

He said that today, the so-called ‘green shoots’ appear and disappear, but never seem to grow under the UPA government. “We had left behind a good economic template for the incoming UPA government to build on. In fact, the first economic survey presented in 2004 by P Chidambaram before the first budget of the UPA government had conceded that the economy is in ‘resilient mode’ and provides huge scope for growth. However, the growth rate in the past year has been abysmal,” Sinha said.

He said that the excellent agriculture output is the only face-saver in the government’s 4.9 per cent growth target, and this has been achieved due to a good monsoon. “I don't think any Prime Minister or finance minister can claim credit for what Lord Indra has done for us,” Sinha said.

He stressed the need to attract investments into projects which would have a multiplier effect on investment demand, which in turn, would stoke consumer demand. “What the UPA government did, instead, was to go in for unrestrained fiscal expansion in 2008-09 to revive consumer spending. The stimulus of 2008-09 pushed inflation beyond sustainable levels,” he said.

Sinha said that the fiscal expansion should have been build on growth-oriented spending and investment-led growth, not consumption-led growth. Instead, simply pushing consumption by pumping in money backfired. “If in 2007-08, the fiscal deficit was 2.5 per cent of GDP, in 2008-09, it touched 6 per cent. The entire cycle of economic activity which the BJP government had embarked on successfully was reversed in 2008-09,” Sinha claimed.

Blaming the government for its ham-handed way of handling food inflation, he said, “If you have high food inflation and don’t control the circumstances for that inflation, then not only will food inflation go up vertically, it will also spread horizontally to other sectors of the economy.”