* Govt raises cap on subsidised cooking gas cylinders
* Decision to cost exchequer around $800 mln
* RBI chief cautions from expanding "misdirected" subsidies
* Govt battling weak finances due to high subsidy spending
By Nigam Prusty and Rajesh Kumar Singh
NEW DELHI, Jan 30 India's coalition government
on Thursday increased the subsidy on cooking gas, acceding to
popular demand as it approaches a national election due by May.
The decision to increase the cap on annual sales of
subsidised cooking gas cylinders to 12 from 9 per household was
made days after Rahul Gandhi, vice president of the ruling
Congress party, demanded a raise in the ceiling.
The move, which will cost the exchequer 50 billion rupees
($800 million), comes at a time when federal finances are under
pressure in the face of weak tax receipts in a slowing economy
and high public spending.
Weak public finances have not only limited policy options to
revive Asia's third largest economy, which is growing below its
slowest pace in a decade, but have also put its investment grade
credit rating under threat.
Little wonder the subsidy increase came into question from
India's central bank which is trying to stabilise a wobbly
economy in a bid to prevent a repeat of last summer's sell-off
by foreign investors.
Raghuram Rajan, governor of the Reserve Bank of India (RBI),
cautioned the government against expanding "misdirected"
"We have to be very careful because we need to spend on very
important things we are not spending on," he told television
channel, CNN-IBN, late Thursday.
Under the subsidies, households will be entitled to buy the
cylinders at less than half the market price. It is a highly
popular, and sometimes vital, scheme in this country of 1.2
Prime Minister Manmohan Singh's decision to hike cooking gas
subsidy flies in the face of his commitment to trim spending on
fuel subsidies, which is at the heart of his struggle to balance
the federal budget.
But Manish Tewari, information and broadcasting minister in
Singh's cabinet, said the government would not shy away from
taking consumer-friendly decisions.
"Let there be no ambiguity that the UPA
(coalition)government will not put any consumer to any hardship
at all," he said.
The Congress party is racing against time to win back voters
disenchanted by a slew of corruption scandals and a dramatic
decline in the country's economic fortunes.
It is trailing in opinion polls and many analysts believe it
is unlikely to win a third term in power. It is also seeking to
protect its turf from the Aam Aadmi - or Common Man - Party
(AAP), which is threatening to draw support away from the poor,
Congress's main voters.
The AAP government in the national capital has slashed power
and water prices, sparking demands by lawmakers in other states
for similar reductions.
In the lead-up to the national election, investors fret that
Congress, known for its penchant for populist welfare schemes,
will shun tough reforms needed for economic revival.
Its government in the western state of Maharashtra last week
decided to cut electricity tariffs by a fifth with immediate
High government spending on subsidies such as food, fuel and
fertiliser coupled with slower-than-budgeted tax receipts have
made it tougher for Singh to keep the government's pledge to
narrow the fiscal deficit to 4.8 percent of gross
domestic product (GDP) in the fiscal year to March 2014.
The fiscal deficit by November had reached nearly 94 percent
of the government's full-year target, piling pressure on Singh
to find alternative sources of revenue.