PM says costly subsidies must be tackled

NEW DELHI Thu Nov 8, 2007 7:48pm IST

File photo of Prime Minister Manmohan Singh speaking at a news conference in New Delhi August 22, 2007. Singh said on Thursday mounting subsidies on food, fertiliser and oil must be addressed and the system restructured. REUTERS/B Mathur/Files

File photo of Prime Minister Manmohan Singh speaking at a news conference in New Delhi August 22, 2007. Singh said on Thursday mounting subsidies on food, fertiliser and oil must be addressed and the system restructured.

Credit: Reuters/B Mathur/Files

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NEW DELHI (Reuters) - India must tackle growing subsidies on food, fertiliser and fuels, and improve its infrastructure if it is to sustain economic growth at around 9 percent, the prime minister said on Thursday.

India discounts widely used fuels, including petrol, diesel, cooking gas and kerosene, and the government is yet to raise retail prices of the fuels this year despite a surge in global oil prices towards $100 and a series of all-time highs.

State-run refiners are losing more than $50 million a day as a result despite the issue of bonds to partly compensate them.

"We need to address the problem of mounting subsidies in food, fertilisers and now in petroleum, which is a recent phenomenon," Manmohan Singh told the country's planning commission.

"Over 1 trillion rupees ($25.43 billion) are going to be spent this year alone on these three items. It is important that we restructure subsidies so that only the really needy and the poor benefit from them and all leakages are stopped."

Singh said the farm sector had to be further revived and manufacturers encouraged if the nation was to sustain robust expansion in gross domestic product.

Policymakers have been worried about sluggish farm growth in recent years even as the overall economy has expanded at a much faster pace.

Nearly two-thirds of India's more than one billion people depend on the farm sector for a livelihood.

"Agriculture growth averaged 4 percent in the last two years and is likely to be 4 per cent this year also. We must ensure that this dynamism is maintained," Singh told the commission.

"I would also like to point out that I foresee the next decade as one in which our food security will be under stress."

Farm growth has averaged just 2 percent over the past five years, far short of services and manufacturing, which averaged over 8.0 percent.

The government imported wheat last year for the first time in six years and has followed up with more overseas buys this year. It has cut import duties to try and ease price pressures.

The Indian economy, Asia's third-largest, has grown at an average 8.6 percent in the past four years but analysts say it must urgently improve its creaky infrastructure to sustain the growth momentum.

"We must continue to create an environment where the growth processes continue to be vigorous and there is full scope for individual enterprise and creativity," Singh said.

India estimates it needs $475 billion between 2007 and 2012 to upgrade its roads, expand and modernise its ports, improve rail services and boost power generation.

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