(1888PressRelease)
March 06, 2007 - New Delhi, 5th March, 2007. The Government at the highest level has been forced to acknowledge the politically destabilising impact of the unchecked rise in the prices of essential and other commodities consumed by the common man and the need for administrative, fiscal, monetary and supply-side steps to arrest them. The results of the recent Assembly elections have demonstrated the voters' anger at the failure of the governments to manage the supply, as well as, distribution side of the crisis which is widening the disparities, instead of bridging them – which the planners had promised. To say that there is no magic wand to control inflation, as Finance Minister P. Chidambaram was quoted as having observed, is a counsel of despair and also confirms lack of willingness to strike and hurt those who are primarily responsible for manipulating prices.
The measures announced n the General and Rail budgets may not help much.
Pressure on prices has been building up for over six months after last year's unprecedented rains in some parts of the country and deficient in others, which badly impacted on the production of wheat, pulses, coarse grains, onions and fruits, such as, apples and oranges. But, precious time was wasted, first in assessing the adverse impact of the shortfall in production and, second, in adopting half-hearted measures, such as, controlling money supply and arranging limited imports to control the situation which had turned critical. Waiting six months or more in the hope of harvesting a good wheat and oilseed crop to increase availability can hardly be called a cogent and effective response to the situation, which is bound to remain with us unless comb-webs covering official thinking are removed and approach characterised by willingness to strike, as well as, hurt the anti-social elements, adopted. The omnipotent lobby of hoarders, black-marketers, wholesalers and middlemen has proved too influential to escape any government action.
President Kalam stated the basic truth, which is taught to elementary economics students: that as growth and investment accelerate sharply and incomes rise, there is bound to be rising demand for all products of day-to-day consumption. The Government conceded that production has been low, but clarified that stocks were replenished to control the rise in prices. Parliamentarians to whom this message was delivered at the inauguration of the Budget Session will definitely raise this issue at length and demand explanations for government's slackness to deal with the problem. But, the whole truth is not revealed. Instead of importing wheat without raising undue alarm and publicising the demand, it allowed international prices to escalate in the face of panic buying, with the result that it could not buy adequately because the domestic consumers would not pay the high price.
The result: limited import which has failed to improve supply, and hence availability, and make on impact on rising prices.
The votaries of liberalization and reform failed to realize that unbridled freedom given to the trade to operate as it willed can have adverse consequences for the economy, particularly the food economy, which really has not come out of the throes of lower production and productivity and is still incapable of meeting the growing demands of an increasing population. Nearly half the population is surviving on bare sustenance diet, and once their consumption grows unprecedented demand pressures will be generated. Another truth, more relevant to the present situation is that in its enthusiasm to privatize the entire economy and please the traders' lobby, which is a rich contributor to party funds, the Vajpayee-led NDA Government nearly dismantled the Public Distribution System and drastically curtailed the role of the Food Corporation of India, which was responsible for maintaining a statutory reserve of not less then 15 million tonnes of food-grains to manage the price situation.
Despite meagre imports, the availability with the FCI is less than five million tonnes with which it can, in no way, control the situation. The Centre has belatedly realised the remissness on its part and only now issued instructions that private trade should step in only after the FCI has made the statutory grain purchases to replenish stocks. With the fair price shops wound up in most areas for want of food-grains and sugar, the poor have been left to the mercy of the private traders and black-marketers.
The result is widespread distress and discontentment which gets reflected in political dissent and even open opposition. The Government has rendered itself helpless because executive orders cannot create food-grains or ensure equitable distribution.
The State governments have powers under the Essential Commodities Act to prevent hoarding and black-marketing and ensure supplies in the market. To give the trade a free play, the law is being allowed to die a natural death and hardly ever invoked for fear of the influential traders' lobby.
It is only when the Prime Minister chose to remind the chief ministers of their failure to take administrative and other measures to ensure better availability of essential commodities at affordable prices, that Delhi and a few other governments started making checks of the stocks with the wholesalers to see if these were excessive to their business requirements, or whether an element of hoarding was involved to make undue profits, taking advantage of the shortages to which President Kalam has alluded.
Therefore, in the absence of adequate stocks with the FCI and reluctance to invoke the anti-hoarding laws and arrange timely imports and supply them at subsidized prices, the Government can hardly expect to gain mastery over the situation. The problem will continue to haunt it.
As the Prime Minister rightly told the Chief Ministers, many of them within the UPA fold, that the impact of the price rise on low and middle-income groups, who have to spend a large share of their income on essential purchases is 'a major worry for all of us." This is a vocal and influential constituency which seems to be in a bad mood and anxious to express its displeasure when the opportunity comes. This is a warning signal for the UPA and merely shifting the blame to the states will not do. It is wrongly argued that price rise is an essential accompaniment of development and that the farmers must get a remunerative price for their produce. Mr. Sharad Pawar forgets that as regards fruits and vegetables (reference onion), the farmer gets only gets one-fifth of the price which a consumer pays for his produce. The margin in developed countries is one-to-three.
What is being done to reduce the extortionist margin of the middleman so that the farmer gets a higher price and the consumer pays a reasonable price for his produce? A producer in Maharashtra still gets Rs. 300/- for a quintal of onion but the consumer pays Rs. 2000 for it in Delhi. How does the farmer gain, though his interest needs to be protected to ensure profitable agriculture? This calls for breaking the politician-wholesale trader nexus which has spoiled the game for both the primary producer and the ultimate consumer.
Experts in the Government are aware of the fact that in the highly-developed economies of Europe and America, where the per capita income is 20 times than that of the average Indian, inflation is contained at between one to two percent per annum. Here, despite lower oil prices, wholesale price inflation has risen to 6 percent, which is above the 5.5 per cent limit set by the RBI. Capacity utilization is higher than at any time in the past decade and severe skill shortages have caused wages to go up.
Bank lending to firms and households has expanded by 30 per cent. The inflation number probably understates the degree of overheating. The country's current account deficit widened to more than 3 per cent of the GDP in just one last quarter - a major swing from a surplus of almost 4 per cent in the first quarter of 2004. If the money sent by Indians abroad is excluded, the deficit is close to 5 per cent of the GDP, which is larger than the equivalent deficit during the balance of payments crisis in the early 1990s.
But, it would be a cause of despair to suggest slowing down growth to check overheating of the economy. This cannot be done in a situation demanding rapid growth to create jobs and reduce poverty. The only alternative to slowing down demand is to speed up reforms and remove the bottlenecks, such as, inadequate infrastructure, inefficient public services, skill shortages and labour law reform which does away with indolence and unwarranted work stoppages, as well as, overall inefficiency.
But, these require heavy investments and the Governments should reason with the Left Parties to give up their opposition to involving the private sector in this major task. They are doing so in West Bengal and rightly resisting opposition from the likes of Mamata Banerjee and others for political reasons. They should wholeheartedly cooperate with the Congress in breaking this logjam and open the doors to faster and more comprehensive growth to benefit all sections of the society, particularly, the marginalized.
There is no alternative to continued high growth rate in all spheres, particularly agriculture, which has hitherto been neglected, with production remaining more or less stagnant for nearly a decade. The Government should also raise the resources needed by widening the tax net and reducing corruption in the taxation departments, which seem to look the other way as big fish continue to evade taxes
