UPA loves inflation

Relentless, rising prices have severely hit the aam aadmi where it hurts the most. But the UPA regime cares two hoots
Sadiq Naqvi Delhi

The Bharat Bandh on July 5, 2009, saw opposition parties uniting against the Congress-led UPA government on the issue of skyrocketing prices. The whole country was virtually brought to a standstill as political parties including BJP, CPM and JD(U) protested against the burgeoning prices of essential commodities that have made life miserable for the aam aadmi.

With elections round the corner in states like Bihar, the opposition parties are leaving no stone unturned in attacking the Congress government for its inefficiency in reining in the prices. With Manmohan Singh, a distinguished economist, at the helm of affairs, they are unwilling to accept any excuse from the Centre."There has been a bumper production in the last six years. It seems that the Congress has an understanding with the hoarding mafia," said BJP Vice President Mukhtar Abbas Naqvi. 

Senior Congress leader and spokesperson Shakeel Ahmad accepts that the difference in the Consumer Price Index and Wholesale Price Index reflects large-scale hoarding, but claims there is little the Union government can do. "Tackling hoarding is the responsibility of the state governments," he told Hardnews. 

However, Naqvi feels this only shows that the Congress has no understanding of the issue. "After all, more than half the states have a Congress government," he said. On the other hand, Punjab Chief Minister Sukhbir Singh Badal has recently said there is very little the state government can do as the Centre controls all the mechanisms to tackle prices.

There are apprehensions that the deregulation of petrol prices might further fuel inflation. The rate of inflation for the month of June 2010 stood at 10.55 per cent which might even go further up as the figure for April 2010 was revised to 11.23 per cent from the earlier 9.59 per cent. Fuel inflation also jumped to 14.32 per cent in June from 13 per cent in May.

"The decision has been taken at a wrong time. When the NDA government took such a decision in 2002, the rate of inflation was just 2 per cent. Now it stands at 11 per cent," said Naqvi.  

However, with an increase in the price of crude oil in the international market, the government might have do a rethink. "The decision to deregulate petrol prices has been taken when the prices are relatively low in the international market. As the prices rise, there will be a drastic impact on the local prices, leading to huge political pressure on the government," said Pronab Sen, principal advisor to the Planning Commission. However, he added, "Inflation has been higher for food products. In the future, it is not oil but the availability of high-value food that will be a problem."

Experts blame the government's anti-poor economic policies for the rising prices. Public investment in agriculture is on the decline, contributing to rising input costs for farmers. With government purchases from the open market on the decline, big retail chains and traders buy the farmers' produce at a cheaper price at the time of harvest and sell it at a higher price later. 

"Foreign companies are buying the produce straight from the farmers and the banks are providing them credit. This is nothing but hoarding," said senior economist Prof Kamal Nayan Kabra. "When sugar prices were on the boil, the sugar mill owners made three times their usual profit. Can the government tell us how?" asked MK Pandhe, politburo member, CPM.

It is the market that dominates the fixing of prices today instead of the government. "There has been a 71 per cent decrease in the purchasing power of the rupee since 1991. And nobody but the corporates have gained from this," said Kabra. Prof Amit Bhaduri puts it more bluntly: "The government is subsiding corporates at the cost of poor citizens." 

Moreover, with foodgrain production mostly dependent on the vagaries of nature, the prices fluctuate with the amount of rainfall. "Instead of investing huge sums on big dams, the government should have explored other ways to increase the area of irrigated land," said Pandhe. The percentage of irrigated land has increased only marginally since 1947.

With the government unable to check black marketing, a major portion of grains earmarked for the Public Distribution System (PDS) ends up in the black market. In fact, the large gap between prices in the open market and in the PDS makes black marketing a lucrative option. Moreover, buffer stocks are held back even as prices rise, for the government doesn't acknowledge it as an emergency situation. No wonder, lakhs of tonnes of foodgrains rot in the godowns.
 
"The Congress doesn't want prices to come down for its workers are minting money by hoarding and black marketing foodgrains," said JD(U) MP Monazir Hasan.

Also, the percentage contribution to GDP by the primary sector is on a decline, pointing to greater emphasis on the services sector. "If the services sector is contributing 52 per cent to the economy, it is not a good sign," said Pandhe.

Experts say that future trading is another obstacle to checking high prices. "It creates supply inadequacies as the government doesn't really know how much stock is lying with the traders," said Kabra. A 1993 review committee on forward trading chaired by him had unanimously rejected the idea of allowing future trading in agricultural commodities.

However, the BJP-led NDA government allowed it in 2003. The total volume of future trading in 2007-08 stood astonishingly at Rs 40,00,000 crore, far exceeding the country's GDP.
The purchasing capacity of the poor has not kept pace with the rising prices. With food inflation above 15 per cent, most vegetables and pulses have disappeared from the diet of the poor.

"Whatever investment the government has made in the rural areas has been usurped by the rural elite," said Pandhe. Moreover, with the government supporting multinational corporations to set up Special Economic Zones, the earning avenues for the poor have further decreased. "The government is taking away their land, forests and water resources, and handing it over to the corporates. This is how the entire policy of high growth doesn't allow the poor citizenry to flourish," said Bhaduri.

This story is from the print issue of Hardnews: AUGUST 2010