Rail fare hike: Grin and bear it; do not call Mamatadi
The steps the government has taken now and those in the offing should make the Reserve Bank of India happy, which will result in a rate cut this month or at least in March.
With the out-of-budget increase in railway fares, the United Progressive Alliance government is sending a warning signal, loud and clear - more big-bang days are in the offing.
The Congress has been looking for an opportunity to unleash the reform measures that were stopped mid-way and this is the time it is banking on for some unsavoury moves.
First and foremost in the list now is fuel price hike. The government has been talking of this of late. An announcement to this effect is expected today, according to media reports.
Reports have said the prices of diesel will be increased by Rs 10 per litre in a phased manner.
According to a PTI report, the oil ministry has proposed a Rs 3-4.50 per litre increase in diesel price and Rs 100 per cylinder for cooking gas. It has also recommended raising the number of subsidised cooking gas cylinders for households to nine a year from the current cap of six.
The increase in diesel price is sure to drill a big hole in the pockets of the public. The increase in rail fares just adds to this.
And Prime Minister Manmohan Singh and Finance Minister P Chidambaram have already dropped hints, by saying difficult decisions will have to be taken to set the domestic fiscal situation in order.
According to a Times of India report today, the government is scraping the bottom of the barrel in its bid to meet the targets for this financial year. The government is staring at a lower-than-budgeted revenue from taxes, divestment and spectrum sale, the report said.
The finance ministry wants to save about Rs 65,000 crore in plan expenditure, the report said.
Agriculture Minister Sharad Pawar's request to clear Rs 30,000 crore fertiliser subsidy has also been rejected, according to the report.
So expect more tough decisions in the Budget, if not before that.
But should we run to Mamatadi? No, better not.
Some of the tough decisions are the need of the hour. (Whether these are reforms is a different topic altogether.)
Economists are hailing the rail fare hike. "We see recent developments as an important signal from the government that consumers need to pay up," said Nomura in a note.
"Over the past few years, consumers have remained immune from rising inflation as prices (of fuel, railway fares, fertilizer, electricity) have been kept artificially suppressed. This kept inflation suppressed, fuelled consumption, and led to an unbalanced economy, with the burden of these imbalances falling on private investment," it said.
These decisions are definitely going to pinch. There will be a spike in inflation. An increase in diesel prices will add to the prices. Already, there have been reports that vegetable prices in parts of the country have increased due to an usually cold winter in North India.
But the steps the government has taken now and those in the offing should make the Reserve Bank of India happy, which will result in a rate cut this month or at least in March.
So grin and bear the pinch. Hope for a better 2013.
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