Wrath of inflation

Price rise is a direct consequence of the growing clout of greedy monopolies, multinationals and profit sharks backed by the Indian State

Kamal Nayan Kabra Delhi

Is inflation a ‘natural calamity’ or driven by cold-blooded profit sharks of the globlised market forces? And is the Indian State a victim or an accomplice to this brazen miscarriage of democracy where the fat cats fleece ordinary citizens to bloat their profit coffers?

No less critical than our policy-induced price rise during the current fiscal is the callous attitude towards it. The policy-makers, who declared 5 to 5.5 per cent price rise as integral to sound economic fundamentals, did not realise that over the last 15 years of ‘privatisation and globalisation’, two-thirds of the purchasing power of the rupee in our wholesale markets had eroded. Surely, what a rupee could buy in the consumer market was less than even one-third of what was possible 15 years ago.

Thus, along with those who did not get regular employment, the number of jobless increased. The absolute level of organised employment declined after 1997-98. The real wages of the employed also came down as money wages lagged behind the increase in prices. What is worse is the deafening silence about the perverse consequences produced by this kind of price behaviour.

Those who lose their sleep over the fall in sensex and rush to order the banks to rescue big speculators, refused to move until the rising prices of essential commodities hit the headlines. And here we are saddled with the Wholesale Price Index (WPI) with its well-known complement of misleading, arbitrary elements. Every single major component of the WPI has gone up, with fuel, electricity and power at 302.1 in the index, followed by primary articles, food and other essential goods of the farm sector at 215 (this was over 194.3 one year ago). Manufactured goods moved up from 170.8 last January end to 181.4 in the index. The last named ‘group’ contributes a large part to inflation owing to its three times larger weight in the WPI.

This means that while the farm goods witness price rise (attributed to the supply-side factors), the larger contribution to inflation is linked to manufactured goods where the government is complementing the corporates for their robust growth performance. No supply-side factors can be blamed as the price spurt is an outcome of larger mark-ups added to the prices by the monopolies and quasi-monopolies ruling the roost in the industries. This inflation of prices is, in effect, another name for profit-inflation.

We already have a situation in which imported manufactured goods amount to over half the total value of our manufacturing sector. We have import surplus — supposed to be anti-inflationary as domestic supplies stand augmented by imports. What also explains the price rise in addition to oligopoly pricing is the fact that huge incomes at the top of our income distribution pyramid is causing pressure on prices.

Besides, the Consumer Price Index (CPI) has outstripped the WPI by almost two per cent because it has jumped by more than eight per cent. Disturbingly, the CPI for rural workers has crossed the two-digit level at 11 per cent. Incidentally, even the ruling political class dreads a double-digit increase in consumer prices as it heralds the danger of social unrest and political hostility.

Thanks to the unbridled marketisation and deregulation of the last 15 years, the race between the nominal incomes earned by the working poor and the middle strata in our largely oligopolistic, concentrated markets, has been won hands down by the galloping prices. This erodes the share of weaker market classes in the real income of the country.

If we look at the past, by mid-May, 2006, the value of one rupee in 1990-91 was just 37 paise. The increase in GDP, averaging around eight per cent during the last three years, has taken place in the services and manufacturing sector, the two together using less than 40 per cent of the work force. Even among these sectors, the wage-earners’ share is quite low as the share of wage cost in the total corporate sector is around seven per cent only. It means a huge chunk of the GDP is going to the non-agricultural sector.

The current erosion is an index of the perverse transfer of money-income from the poor and working people with fixed, low, uncertain income to the top echelons of trade and industry, and exporters to India, etc, who are the price-givers in the economy. This process is on with massive speculative gains booked by a small part of 55 lakh demat account holders and the manipulators of the commodity exchanges whose turnover is almost at par with the GDP of India. This is so because only a tiny fraction of the workforce, a part of the seven per cent workforce engaged by the organised sector, has partial indexation of their incomes while the real wages have lagged behind the increasing prices.

This is the brazenly anti-democratic scenario of raging inflation which hits basic socio-economic necessities, adequate, secure livelihood, including food and nutritional security. The price behaviour and the government’s cold-blooded response proves that the current policies are meant to benefit large Indian and foreign companies. They not only gain from price rise, but also from some anti-inflationary measures like cutting down the customs duty on the inputs they import, or the permission to import essential commodities like wheat, or duty free pulses.

Such activities can only be undertaken by large business houses. They are under no obligation to pass on the duty cut benefit to the consumers.

Indeed, Indian trade is unlikely to import goods and cut domestic prices against their own business interests. A marginally reduced price system gives them the necessary market control. Besides, the big business lobbies have asked the government not to try micromanagement of prices as market forces have to be given a free hand under the current policy dispensation. As a result, big traders were able to command huge stocks of essential goods even while the Essential Commodities Act seems to be getting diluted. The permission granted to big local and foreign companies to enter rural markets and buy from outside the regulated markets, and to carry on futures trade in essential commodities, can be disastrous in the days to come.

The Manmohan Singh-led UPA government, driven by the neo-liberal spell, has deliberately ignored the supply of essential goods under the Public Distribution System (PDS), the inclusion of pulses and edible oils in the PDS, duty free import of these items of mass consumption, banning export of mass consumption goods and reduction of heavy duties on a universal intermediate product like diesel that has a cascading effect. ‘Profit-inflation’ is a preferred outcome of the neo-liberal market processes.

This follows from their basic economic objective of pushing up the rate of growth of GDP as the sum and substance of economic success. Nothing would be more illogical than to maintain that inflation is an inevitable consequence of growth, as Finance Minister P Chidambaram has claimed. Inflation is a deliberately engineered outcome of policy stances that favour a high rate of growth of the kind the top big business houses and their foreign counterparts can profit from.

The only saving grace is that while we have been forced to enter blindfolded into the ‘Washington Consensus’, like the Latin American countries, we are still spared the Latin American rates of inflation, thanks to our aam aadmi electorate. Besides, the statist legacy of the public sector still provides basic goods. It is a sign of hope in an overwhelming condition of despair generated by greedy profit sharks backed by the pro-rich Indian State.