Are we learning from the mistakes we committed in the past? Not really. On the contrary, we seem to be repeating them.
The single biggest failure of the second United Progressive Alliance government has been its failure to control food prices. India produces the world’s cheapest car, the Nano.
It is also the country where certain categories of lentils or dal (tur, moong and arhar) cost no less than Rs 100 a kilogram. Sugar prices have trebled over the last 15 months, and are expected to rise further. Potato prices have doubled in a year. Butter could not be found in grocery shops in many localities of the National Capital Region in early November in anticipation of a price hike. Non-seasonal fruits and vegetables have become a luxury, not just for the aam admi in whose name the Congress-led coalition government won an electoral victory in April-May 2009, but even for the large sections of the country’s middle classes.
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| Paranjoy Guha Thakurta |
Government spokespersons blame Indra Bhagwan, the god of rainfall, for the fall in the summer crop output—the production of kharif rice and wheat is down by around 10 percent. They seek to hold the state governments responsible for not ensuring that hoarders and speculators are taken to task. They claim intermediaries are skimming off profits from the time the food leaves the farm till the point it reaches your neighborhood retailer. These explanations tell only one part of the story. The union government has to accept its share of responsibility.
Calibrating exports and imports and coordinating the activities of at least three important ministries in the union government—agriculture, commerce and finance—is hardly simple in the best of times. The recent track record of the government in this regard has been pretty pathetic. A few examples would suffice. In late 2008 and early 2009, the government claimed that there was surplus sugar in the country and allowed exports of 4.8 million tons of the sweetener at Rs 12 a kg. The country will now be importing an estimated 7 million tons of sugar at a price that is more than double the price at which exports were made. Are we learning from the mistakes we committed in the past? Not really. On the contrary, we seem to be repeating them.
Here’s an example. In the course of the year 2006, exports of onions surged by over 60 percent while retail prices in the domestic markets shot up by around 150 percent. What makes things worse is corruption. The outcome of an official investigation into the so-called rice export scam is still awaited. During 2008, a ban on the exports of non-basmati rice was cleverly circumvented and consignments of the cereal found their way out of India, ostensibly to a clutch of African nations—in the name of "humanitarian aid" —through a particular group of exporting firms that were specifically identified by representatives of the governments of these countries. No tenders were floated and what is especially questionable is that some of these consignments of rice were diverted through Geneva in Switzerland. No one has been punished thus far. Whether anyone will be or not, and when, is a matter of conjecture? A prominent weekly, Outlook, has claimed that the then Union Commerce Minister Kamal Nath knew of what had happened.
Ministers seem reticent to shed even crocodile tears for the poor these days. They may not publicly say so, but some of them probably think their honeymoon period with the voter is still on. The next general elections are, after all, not scheduled before 2014. But the past has a strange way of catching up with the future. After the 19-month-long emergency, Indira Gandhi’s government was rejected by India’s voters in May 1977, but they voted her regime back to power in January 1980—the slogan that had a huge impact on the electorate at that time was related to the price of onions. Her son Rajiv Gandhi’s defeat in the polls in December 1989 took place after a sudden spurt in sugar prices. The person held responsible was the then Civil Supplies Minister Sukh Ram who was later indicted for corruption as telecom minister.
The powers-that-be will be deluding themselves if they think they can ignore the impact of inflation on the ordinary homemaker who helplessly finds her real income shrinking by the month. Even none-too-accurate government statistics, namely, the official wholesale price index (WPI) point out that food prices have risen by one-fifth over the past 12 months, while the prices of particular vegetables have shot up by huge proportions varying between 50 percent and 100 percent.
A combination of two broad sets of factors—described by economists as ‘demand-pull’ and ‘cost-push’ factors—contribute to inflation. The drought, the rise in rural incomes on account of (among other things) the rise in minimum wages given under the National Rural Employment Guarantee Act and the higher minimum support prices for wheat and rice given to farmers, are among the reasons for the recent rise in food prices. At the time of writing in the third week of December, the food inflation rate was the highest in a decade. (In August 1991, three months after Manmohan Singh became Finance Minister, the WPI inflation rate had hit a high of around 17 percent.) The high inflation rate in 2008 was to a great extent driven by high energy prices as India imports three-quarters of the country’s total requirements of crude oil and petroleum products.
Inflation is one economic phenomenon that everyone understands, for it pinches the pockets of virtually each and every individual. Economists differ on many issues, but all of them are unanimous that inflation is like a tax on the poor. Rising prices of essential commodities and articles of mass consumption reduce the real incomes of the underprivileged sections of society even as the incomes and profits of the rich could rise. When inflation is primarily a consequence of high food prices—as it is at present—it is akin to a double tax on the economically disadvantaged. This is simply because the poor spend a much larger proportion (often more than half) of their earnings on food, unlike the affluent. And this is what makes inflation so socially disruptive and dangerous.
The author is an educator, an economic analyst and a journalist with over 30 years of experience in various media—print, radio, television, Internet and documentary cinema.
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I strongly agree with your points as you mentioned in this article.......My question is "Why our country is not following the Merchantilism?" it'll be more healthy for our economy........I'm sure Arabic countries are still now following this policy.......Could you please suggest your opinion regarding this Inflation and Merchantilism.