ECONOMY

OTHER STORY RELATED TO ECONOMY Interview: Yashwant Sinha

Call it the price of freedom. This is one promise that the Vajpayee Government has fulfilled on time-decontrol of distribution and prices of all petroleum products by April 1, 2002. Only the decontrol will cut into people's pockets. The price of LPG has gone up by Rs 40 per cylinder and that of kerosene by 50 paise per litre. The cold comfort is that LPG still carries a 23 per cent subsidy and kerosene 33 per cent. Moreover, prices of petrol and diesel have fallen.

That's not all. The petroleum sector will witness lots of action in the coming months. A petroleum regulatory board will be set up soon; private petroleum companies-Reliance, Mobil and MRPL-can start setting up retail chains; the notorious oil pool deficit, currently Rs 13,000 crore, will be liquidated. Instead of paying that much money to the oil companies, the Government will issue bonds for the amount equivalent to the deficit on March 31, 2002.

ECONOMY PRICE AFTER DECONTROL SYSTEM AFTER DECONTROL > Domestic prices to now vary with global prices. > Private sector will be allowed to set up retail outlets. > Prices to increase with distance from refineries. > Bond issue to liquidate Rs 13,000 crore oil pool deficit.

In the liberalised environment, domestic oil prices will move in tandem with global crude prices. A monthly adjustment in prices of petroleum products is most likely. Freight cost too will have an impact on retail prices.

The unshackling, however, isn't complete yet. For good or for bad, the government will intervene to moderate price fluctuations by tinkering with taxes. The real competition will elude the sector till the subsidy on LPG and kerosene continues. "We do not see the subsidy going away for 3-5 years," says Devinder Chawla, principal, AT Kearney.

-Malini Goyal

ECONOMY II. SINHA'S AGRONOMICS >Remove controls on sale and movement of farm produce SO THAT a nationwide market for farmers can be created. >Open up agriculture exports and start futures trading SO THAT farmers can get better price for their crop. >Amend Milk & Milk Products Control Order and Agriculture Produce Marketing Act SO THAT food processing becomes remunerative. >Set up a corporation for agriculture insurance SO THAT farmers do not lose incomes in case of a crop loss.

Agriculture
For a Change, Real Reforms

A good 15 per cent of Sinha's budget speech was dedicated to agriculture and the rural economy. That's the longest any recent budget speech has devoted to agriculture, says farmer leader Sharad Joshi. But it's not just the quantity but the quality of Sinha's commitment that Joshi, founder of the Shetkari Sanghathan, finds more commendable. "The Budget signals an overdue change in the Government's mindset. Instead of being a producer and intervener in agriculture, it now wants to be an animator and enabler," he says.

Restrictions on the export of agriculture produce have been lifted and procedures simplified. The setting up of milk processing facilities has been made easy. The Budget paves the way for forward trading in all agriculture produce. State governments will be asked to scrap the remaining restrictions on inter-state agriculture trade. Funds flow for Central government schemes to states will now be linked to the speed of agriculture reforms. The purpose of these steps is to free the rural economy from the shackles of government control.

"Mutual funds now offer little advantage over bank deposits." R.H. Patil, Chairman, CCIL

"The finance minister had the opportunity to do much more." k.V. Kamath, CEO, ICICI Ltd

Agriculture reforms are as important as any other second-generation economic reforms-labour law amendment, privatisation-simply because they can propel India to a steady growth path. For instance, the proposed amendment to the Agriculture Produce Marketing Act will allow farmers to sell their produce directly to food processors. They can bypass the mandis and get better prices for their produce. "The Government has realised the importance of the food processing industry. Let's hope it doesn't remain just a good beginning," comments Arvind Singhal, chairman, KSA Technopak.

Partly, such apprehensions stem from the fact that most agriculture reforms can only be initiated by the Central government. The completion and execution rest with the states. "A lot depends on state governments and the push for the rural sector is as yet only a statement of intent," says Vimal Bhandari, executive director, ILF&S. But Sinha must be credited for starting to relinquish Central government control on agriculture, something his predecessors in the 1990s shied away from.

-Rohit Saran

Defence Spending
Surcharged to the Teeth

ECONOMY DEFENCE SPENDING > Allocation > Spending

During December 2001 the armed forces waited with bated breath for a signal from the Vajpayee Government for launching air strikes to destroy terrorist training camps in PoK. The signal never came because the Government chose instead to launch a diplomatic offensive against Pakistan. One of the factors that weighed in favour of diplomacy was apparently India's limited precision strike capability to eliminate the terrorist camps without significant collateral damage. One wrong move, the Government reckoned, would fuel Pakistan's Kashmir cause.

After years of vacillation, India's armed forces are all set to replenish their arsenal. Propelled by a Rs 8,000 crore increase-from Rs 57,000 crore in 2001-2 to Rs 65,000 crore now-in the defence allocation in the Budget, the three services are expected to undertake major defence acquisitions in order to plug the gap in their offensive capabilities.

"Those critical of the budget haven't realised its impact." Rahul Bajaj, Chairman, Bajaj Auto

"The budget reflects a change in the mindset on agriculture." SHARAD JOSHI, Farmer leader

"The infrastructure thrust should spur the economy but not in the short term." VINAYAK CHATTERJEE, Chairman, Feedback Ventures

"Bureaucrats will now show greater urgency in clearing big arms deals." A.Y. Tipnis, Air Chief Marshal (retd)

The focus is on acquiring long-range precision strike capability through state-of-the-art force multipliers, building a credible nuclear deterrent and maintaining conventional superiority in the region. While the army is acquiring self-propelled guns and precision-guided bombs, the air force will add teeth through advanced jet trainers (AJTs), refuellers and airborne warning and control systems (AWACS). The navy will add muscle with an aircraft carrier and submarines.

The armed forces have been aspiring for such hi-tech capabilities since the 1999 Kargil War. The Government responded by upping the defence outlay in the 1999-2000 Budget but the proposals got entangled in red tape. With South Block dragging its feet, about Rs 4,000 crore of the military modernisation budget was surrendered by the Defence Ministry in 2000-1. The following year the Tehelka episode and the CAG report on defence purchases led to another Rs 5,000 crore going unutilised. However, with the Defence Procurement Board becoming functional and the 10-year ban on the use of arms agent being lifted in December 2001, the weapon acquisition process is expected to get going now.

ECONOMY MEGA ARMS DEALS Forty T-90 tanks have been recently purchased from Russia > $2.3 billion towards purchase of the aircraft carrier Admiral Gorshkov with 28 MiG-29 K aircraft on board from Russia. This purchase will give India blue-water capability and add punch to the navy's force levels > $1-1.5 billion towards purchase of more than 300 G-6 self-propelled guns from South Africa. They will add teeth to the artillery. > $1.38 billion towards purchase of 66 Hawk advanced jet trainers from the UK. Hanging fire for 16 years, the dual-purpose aircraft will provide training to IAF pilots. > $2.5 billion towards purchase of three Phalcon AWACs from Israel. This command and control force multiplier will improve IAF's detection and intelligence capabilities.

Lt-General Vinay Shankar, former director-general of artillery, says the main concern of the armed forces is to remove the existing deficiencies in its inventory-estimated to require Rs 15,000-20,000 crore-while keeping the modernisation programme on course. "Increasing the defence budget becomes meaningless if the outlay is not spent on much-needed weapon acquisition for the military," he adds.

The Rs 4,454 crore hike in the defence capital outlay this year could clear the way for the Indian Army's purchase of self-propelled guns from South Africa, gun-locating radars and communication sets from the US and Krasnopol terminally guided bombs from Russia. The army is also shopping for towed howitzers and armoured personnel carriers.

Another major acquisition will be the Hawk AJTs from the UK. Their acquisition has been hanging fire for the past 16 years. Air Chief Marshal A.Y. Tipnis says the initial payment for the AJTs was to be made in 2000-1. "The air force is over the hill. It needs AJTs and several squadrons of fighters to replace the ageing mig-21 aircraft." He expects the AJT deal to come through this year.

As for the navy, it hopes to get the Admiral Gorshkov aircraft carrier with a complement of migs-29 K fighters from Russia. The navy also wants high-endurance Scorpene submarines from France. With its neighbours developing long-range delivery systems, India can ill-afford the indecision that has denied its armed forces the latest technology in the past.

-Sishir Gupta