February 5, 2014 8:59 am

India business hits at fuel subsidy plans

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A supporter at a BJP rally in Meerut©Reuters

A supporter at a BJP rally in Meerut

Indian business leaders have criticised politicians for seeking to attract voters with fuel subsidies, special favours for minorities and the promise of more pay for civil servants, describing the latest round of pre-election handouts as costly and corrupt.

With a general election due by May, the Congress party in power for the past decade has unveiled measures over the past week designed to draw support from disenchanted voters.

Among them is an increase from nine to 12 in the number of subsidised cooking gas bottles allowed to each household every year, and a cut in the price of the compressed natural gas used in urban buses, taxis and the ubiquitous three-wheeled autorickshaws.

This week, the government also launched the country’s latest Pay Commission, which is expected to increase the salaries of some 5m central government employees.

“It’s absolutely depressing,” said Gurcharan Das, a liberal commentator and businessman who used to run Procter & Gamble in India. “We use words like ‘populism’, which don’t in any way capture the bribery, the corruption.”

The Federation of Indian Chambers of Commerce and Industry condemned the additional cooking gas subsidy and the government’s recent move away from a transparent system of paying such subsidies electronically to people’s bank accounts as “an economically retrograde step”.

According to Ficci, the extra subsidies for gas bottles would cost the exchequer up to Rs50bn, adding to the some Rs1,400bn already being spent in the current financial year on subsidising oil and oil products. “The government must continue its endeavour to curtail subsidies and correctly target them,” said Ficci president Sidharth Birla.

Congress is by no means the only Indian party to offer the prospect of financial gain as a way of gaining popularity at the polls. In past elections, politicians have granted everything from television sets and gold bracelets to privileged employment status for members of lower castes.

The Aam Aadmi (Common Man) Party of Arvind Kejriwal won a large share of the vote in December’s state election in Delhi and is now running the city’s government after promising cheaper water and electricity to the poor. Electricity distribution companies say they cannot pay power producers and have warned of extensive power cuts in the capital.

FT Video

Indian summer means power cuts

Indian diner

May 2013: As temperatures rise, so does demand for power. In 2012, a blackout in north India left 600m people without power for two days. The FT’s Victor Mallet reports on the effect an unreliable power supply has on business.

The only comfort for critics who oppose pre-election handouts is that no party has yet announced anything on the scale of the $15bn farm loan waiver announced by Congress in 2008, the year before the last general election. The waiver applied only to loans extended by state banks, but in effect penalised those servicing their debts and prompted a rise in defaults across the financial system.

Palaniappan Chidambaram, the Congress finance minister, has promised investors that he will limit the budget deficit this year to 4.8 per cent of gross domestic product, but to do so he has had to push some spending plans into the following financial year and extract a special interim dividend from state-owned Coal India worth $2.6bn to the treasury.

Opinion polls and commentators say the incumbent Congress is likely to perform poorly in the coming election, while the Hindu nationalist opposition Bharatiya Janata Party is favourite to form the next coalition government.

Regional and leftist politicians are discussing a “third front” that would exclude the two main parties, and the AAP could win seats in big cities such as Delhi and Bangalore.

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