CPI group leader in the lower house of Indian parliament is right in blaming the UPA government but missses one thing: world fod crisis which is the direct proof of collapse of war-mongering neo-liberal finance capital or anti-human globalisation.
Sankar Ray
Price rise: shameful inaction by Gurudas dasgupta 15 Apr08 (http://thestatesman.net/page.news.php?clid=4&theme=&usrsess=1&id=199385)
Inflation is unabated, unbearable; it has spiralled to a 40-month high. Monetary measures have failed and the monitoring committee appointed by the government did not work. The theory of imported inflation is now being harped on. The RBI, as claimed by the Governor, is seized of the problem but it has acted only in vain.
People are in peril. Nearly 77 per cent of the people, living on a meagre Rs 22 per day, is gravely hurt. The government in power has cynically sought to explain the phenomenon of price rise as an inevitability in a growing economy. That is how it underplayed the galloping price rise. The truth is that the government did not do its job of curbing inflation.
The liberalised economy under the impact of high speculative pressure allowed the manipulators of prices and hoarders to play havoc. The administration did not make any direct intervention lest the market forces get upset; price control was never its objective. Clearly the political leadership of the country is incapable of facing the grave situation as it obtains today.
Inflation has alarmingly moved northward without any respite. The rate crossed the critical six per cent mark to reach a high of 6.68 per cent for the week ended 15 March 2008. The weekly spike is almost a full percentage point given that the annual rate of inflation based on wholesale price index stood 5.92 per cent for the previous week ended 8 March. The price flare-up is steep and the weekly inflation level is the highest since 27 January last year when it stood at 6.69 per cent. It is also the fourth consecutive week that the inflation rate has been above five per cent, breaching the Reserve Bank of India's target level for the current fiscal.
This inflation is also unrelenting; it has accentuated further and the situation is graver today. It is at an all-time high in three years and peaked to 7 per cent last week. According to the latest figures the inflation is an all-time high ~ peaking to 7.41 per cent ~ in the last 40 months. The retail price that rules in the market is at least three per cent to four per cent higher than the wholesale price index. In reality, the country is facing a dangerous double-digit inflation.
The market is on fire. Shamefully, the inflation is led by the increase in the prices of almost all essential goods and commodities, particularly food articles. Despite a better crop the country faces sky-high prices; the increased supply did not lower the rate of inflation. This year, the rainfall has been moderately good and the country has achieved record foodgrain production of 219.32 million metric tons in 2007-08, including 94.08 million tons of rice 74.81 million tons of wheat, 36.09 million tons of coarse cereals and 14.34 million tons of pulses. The oilseed output is estimated to be 27.16 million tons and cotton production is set to be all time high.
The question that arises is, why ~ when agricultural production has improved considerably in comparison with previous years ~ are prices going through the roof? The answer is obvious too: the market price today is not determined by the interaction of the forces of demand and supply. The market price is actually dictated, rather manipulated. The mismatch between the demand and supply is not so wide as to push the price spiral so severely.
The government has failed to look into the core issue, rather, it has faltered in curbing the stockpiling and hoarding. It did not even reverse the amendment of the Essential Commodities Act done by the NDA government, to dilute the earlier rigorous provisions and allowed an artificially overheated market to run amok. Most ominously, the price rise is aggravated by the increasing price of almost all essential items.
The wheat price has jumped by almost 200 per cent, between 2002 and 2008; the retail price of essential agricultural commodities in Delhi, as on 13 March, indicates a galloping increase: mustard oil by 58.2 per cent, vanaspati by 41.1 per cent, rice by 20 per cent, tur dal by 20 per cent, potatoes by 12.5 per cent, wheat by 8.3 per cent and atta by 7 per cent. Such spiralling prices burn huge holes in pockets of middle class, not to speak of the poor and the vulnerable.
A chapati costs Rs 4 in Mumbai; Rs 3 in Lakshmi Sarai, a Bihar downtown, and in Delhi, it cost Rs 2.5. A frugal lunch in Noida comprising a few of rotis, watery dal, low quality brinjal sabji, is priced at Rs 20 at a wayside shop. Imagine the hardship of the masses.
Now-a-days dal is no longer included in the daily menu of the poor and marginalised. It is a coveted food item of a festival dinner. The price rise has drastically changed the food pattern of the community. The poor, not the affluent and the rich, suffer because their incomes are not inflation indexed. Inflation is a regressive tax. The answer would be to target and subsidise the poor along with an effective action plan to rein in prices. High prices of food articles is highly tormenting for the poor since a large part of their income is spent on food consumption. For the rural poor it is 55 per cent; for the urban poor it is 45 per cent. As such, the situation is desperately dangerous for the vast multitudes.
It we look at the consumer price index for agricultural labour and rural labour, the condition too is very gloomy. The indices of Punjab and Uttar Pradesh farm labourers and rural labourers registered the highest increase of 9 and 8 points, respectively, mainly due to the rising prices of rice, atta, wheat, milk, mustard oil, vanaspati, vegetables and fruits. In case of farm labourers, seven states reflected an increase ranging between 1 and 3 points; six states, 4 and 5 points, three states between 7 and 9 points. Haryana, with 448 points, topped the table, while Manipur stood at the bottom with 366 points.
The other bitter truth is that consumer price indexing is faulty; there is a complaint about the calculation being fraudulent. Despite the basket of items constituted being arbitrary, the movement of consumer price index cannot cover the price explosion. Agricultural and rural labour constitute a significant section of the vulnerable rural population, the price rise hits them the hardest.
In a situation like this, the ideal response would be to raise the food subsidy and strengthen the public distribution system. When the inflation rate was surging ahead as never before with food prices running rampant, the public distribution system collapsed. Surprisingly, the off-take of what under the targeted mechanism was 102.5 lakh tons against the allocation of 144.9 lakh tons. Only 70 per cent was lifted by the states. Clearly, the scheme is mismanaged, the quality of supply totally substandard, diversion widespread and pilferage rampant. The public distribution system, the largest centrally-sponsored scheme in coverage as well as public expenditure is meant to sustain the quality of life of the masses. Subsidised at one-half of the economic cost of foodgrain, in effect, it serves to transfer income to the poor and to insulate them from rising inflation.
The very fact that the food supplies are needed to sustain food security indicates the vulnerability of casual workers, small and marginal farmers and agricultural workers. While leakages and diversion of supplies to black-market are true, what is most shocking is the fact that a large volume of marginalised masses lack access to the subsidised food distribution system. According to one survey, half of the marginal farmers are denied entitlement.
Another report identifies nearly 1.25 crore people who are left out of food security umbrella. Erratic supply of foodgrain, reduction of quota to the states, poor quality of the materials, sometimes almost uneatable, along with open trade of foodgrain meant to provide food security to the people, have resulted almost in the total collapse of the system. This, in turn, has left the food market at the mercy of the speculators and hoarders.
Direct transfer to help the poor and middle class even if it be fiscally unwelcome to the leader of the government, is the surest way to cool the market. Monetary measures cannot prove to be effective even for a short run relief as already found out to be.
The crucial question is whether the government could have initiated pre-emptive measures to avert the price crisis. The sharp rise in inflation was anticipated, the danger was inherent in the speculative economy that the government had set up. Experts had warned the government; commentaries appeared in the media. A leading journal had warned the government that "The country is likely to face serious food inflation in the first six months of 2008... A combination of rising food and fuel prices is sure to put the government on the defensive."
A calling attention motion was moved in the Lok Sabha drawing the attention of the finance minister to the alarming price situation earlier. Food production was stagnant for years, the availability of foodgrain had dipped to the level of 1971, even the increase in the production in 2007-08 had registered less than one per cent growth. All this while the international market was overheated. The trend being clear, the government should have acted firmly well in advance to prevent the price explosion.
While presenting the budget, Mr Chidambaram had noted that "supply-side management of food articles would be the most crucial task this year and the government is determined to be self-sufficient in foodgrain".
The budgetary allocation did not reflect the concern of the finance minister, neither were there increased budgetary funds for promoting food production nor did the budget allot additional money for strengthening the public distribution system to protect the livelihood of the common people in a situation of abnormal rise of market prices of food articles.
The finance minister, confronted with stark reality, only expressed concern, shed synthetic tears for the human distress but refrained from taking effective measures to halt the price rise. The philosophy of unfettered, free economy stood in the way.
The purpose of pointing this out is to put on record the government's incapacity and failure to read the market signal and its refusal to heed the timely warnings from different quarters and take active measures in advance to fight the impending calamity. The government lacks adequate commercial intelligence and research capability to be able to have an objective outlook over prices of major commodities.
If the price rise is a disaster, the government's inaction ~ instead of action well in advance ~ is an outrage. Even now there is no sign of decisiveness. The government is reluctant to take emergent measures to ameliorate the distress of the common people. The question is what could the government do but has not done. A great many steps could have been taken including a major policy initiative to augment farm output but the government faltered. It only declared that price rise was inevitable in a growing economy, a lame argument to fall back upon. The government, in office nearly for four years, did not take necessary steps to raise agricultural production, particularly food output. It is not too short a period to do the job. Even public investment in agriculture declined, bank credit to agriculture fell, rural infrastructure did not develop, irrigation did not improve. The stage was set for the crisis to burst out.
Instead of increasing the agricultural subsidy, it was pruned. It was clear that the government had no intention to tackle the agricultural crisis and food shortage, there was no fire-fighting strategy. In foreign countries even when price rise is acute, administrative price increase is postponed so that market is not overheated. In India, the government did just the opposite. The successive dose of price increase of petroleum products further escalated the cost of production, hiked the transport cost and inflamed the market. The loss of revenue caused by the reduction of tax on petroleum products ~ had the government so decided ~ could have been compensated by imposing tax on other sectors having greater capacity to pay.
The corporate sectors, the service sectors, people having more than Rs 10 lakh annual income, transaction in the secondary market and the grey areas should have been some sectors that the government could have looked for mobilising additional resources. Another hard option would have been to target the business enterprises suspected of manipulating prices. The government lacks political firmness to move in this direction.
If de-hoarding is to be done by the states, firm direction in this regard is to be issued by the Centre. On top of everything, direct intervention can be made to ensure price stability by restoring and revamping the universal public distribution system. The situation is too grim and the government is too insensitive. A timely intervention would have saved the situation.
Most regrettable is the statement of the Prime Minister on price rise. He clearly stated, inflation is difficult to control. He further said: "We in India too are deeply concerned about rising global commodity and food prices. Sharply rising food prices can slow down poverty alleviation, impede economic growth and retard employment generation."
The Prime Minister admits that the price rise cannot be controlled even as he warns the nation of its dire consequences. Dr Manmohan Singh offers no relief to the common people; he only makes them panic-stricken. If the Prime Minister of the country is so powerless as to plead helplessness of his government to curb price rise, obviously the signal is dangerously grim.
It will only entail a free-for-all, induce hoarders and blackmarketers to play foul with greater vengeance and make people lose confidence in the government. This represents a shameful surrender to delinquent market forces. The Prime Minister's statement is an unabashed refusal to admit his own mistake apart from being an unintelligent attempt to hide under the cover of global inflation.
Briefing reporters after a meeting of the Union cabinet, the science and technology minister, Mr Kapil Sibal, has done worse. In fact, he ridiculed the demand for controlling rising prices and said "the government has no magic wand to bring down prices". Such senile sarcasm is, in reality, a move to underplay the role of the government in stemming the exorbitant price rise; a futile attempt to exonerate the government from the charge of despicable inaction.
It is a pity that the government failed to augment food production even in four years. It only made India dependent on foreign imports and vulnerable to global price instability. The country lost its food sovereignty under this regime and agriculture stepped into catastrophic stagnation. These neo-liberal roots of the agricultural crisis can be traced to policies prescribed by the International Monetary Fund and the World Bank, obediently carried out by the successive governments.
The UPA government never re-examined the major agrarian policy decisions of the earlier governments. It only carried forward unaltered the policy of unguarded liberalisation and continued to curtail agricultural subsidy and further opened the doors to foul play by the food trades, domestic and foreign. Running down the PDS and cutting down the allocation of grains from the Central pool to the states deepened the crisis.
The question is not whether the government can do anything today. The crucial point is what the government did yesterday, before the crisis had become so critical. That the government is criminally guilty is undoubtedly true. The wrong economic policy has not only resulted in unprecedented price rise, it has landed the country in the despair of stagnation. The combination of stagnant or falling output and rising prices is what is known as the dreaded stagflation.
The latest economic survey points out the slow down in the crucial sectors of the economy: manufacturing, construction, cement, steel and consumer durables. It also notes with concern the tardy growth of revenue earning freight traffic. The decline in agricultural production was also noted in the survey. While the rise in prices will reduce the purchasing power of the masses, real wages will decline, the stagnation of the economy will cut jobs, impact upon the wage levels, make joblessness more dreadful and impinge upon the quality of human life. India is in a crisis as never before. The UPA government is only to be blamed.
(The author is a CPI member of Parliament)
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