Economic Highlights

New Delhi, 17 February 2011

Economic Fault-lines

50 PAISA SALT SELLS AT RS 12!

By Shivaji Sarkar

Almost in a span of ten days two different stances taken by Prime Minister Manmohan Singh baffles the nation. Some days ago, he said that inflation was worrisome as it might affect growth. But at his inter-action with television editors, Singh reversed it and said inflation was necessary for maintaining growth.

It is an economic theory that certain inflation is necessary to keep the system lubricated. The US and Europe put it at no more than 3 per cent. But beyond that alarm bell starts ringing. India has inflation at 15 to 20 per cent level which erodes the people’s capacity to have spare money that maintains the growth process.

The other fault-line was comparing the so-called food subsidies with the 2G spectrum losses. Singh’s statement is candid, nobody knew about the methodology and possibly what he wanted to tell the nation used to subsidies, is that it mattered little who benefited from spectrum, the poor or the rich corporates. So why should one bother about it?

Questionably, is it possible to sustain the much-hyped growth rate of 8.6 per cent? Certainly the nation has mastered the art of showing it on paper and the Government might do so once again. However, the realities are reflected by different indices. The Index for Industrial Production (IIP) indicates fall in production to a critical 1.6 per cent.

But one needs to agree with the Prime Minister when he states, “food subsidy of Rs 55,000 crore is a loss.” It is a gargantuan loss! As neither the farmer nor the poor, forget about the average consumer, gets a paisa out of it. The entire food subsidy is given to the Food Corporation of India (FCI) which is supposed to pass on the benefit to farmers by purchasing their products at a minimum support price.

The FCI has done this but not passed on the benefit to the consumers. Instead, it has become the biggest agency for hoarding food grain and aiding food inflation. It has not released any food grain, except for the BPL users. Worse, while it is supposed to maintain a buffer stock of 82 lakh ton of wheat and 118 lakh tons of rice, it maintains a stock of 230 lakh tons of wheat and 242 lakh tons rice, more than double the requirement. Making the FCI the biggest hoarder which has lost over 67,000 tons of wheat and rice in Haryana and Punjab.

The role of subsidies is not restricted to food grains alone. It spills over to sugar which got an Rs 653 crore subsidy as proposed in 2010-11. The sugar companies were given a direct subsidy of Rs 501.83 crore during 2009-10. This is in addition to the reimbursement of Rs 285 crore to sugar factories for internal transport and freight charges for export shipment of sugar. This year Rs 200 crore was allocated on this count.

So the Prime Minister is correct in his assessment. If, according to his statement, Rs 80,000 crore food subsidy could go to the corporates indirectly, why cannot another Rs 1.76 crore or whatever the amount go through the 2G route?

No wonder, Manmohan Singh is silent on the high corporate profits piggy-backing on sops the Government gave to them during the last two years. The corporates have gulped down all sops, made their products expensive to pocket more from the consumers. Be it milk, butter, food grain, vegetables, onion, refrigerators, fans, cars, textiles etc.

Possibly these “reforms” are what the Prime Minister has been talking about. More reforms means more benefits to the giant corporates. Most scandalously, the corporates purchase salt at less than 50 paisa a kg but sell it at a staggering Rs 12 through market monopolisation. Who is bothered about the poor man’s “namak roti”? It is a different story that even exploitative “namak” prices are fuelling corporate profits.

One would have expected that Manmohan Singh, who hails from a poor refugee family, to at least feel concerned about the corporates bleeding the poor. He, however, is more concerned about the exploiter and forgets that even an average person has no “disposable income,” spare money, to go to the market and buy something other than food items.

The high interest regime ushered in by the Reserve Bank has further stoked the fall in overall demand for commodities. Not only the poor, but even the middle class who sustain growth are becoming poorer. Thus, the fall in the IIP was inevitable. This is not all. Manufacturing growth stands at a mere one per cent (19.6 per cent in 2009), capital goods at minus 13.7 per cent (42.9p.c in 09), and consumer non-durables at minus 1.1 per cent (3p.c. in 09). There is only a minor growth in electricity generation to 6 per cent from 5.4 per cent in 2009.

Significantly, these are tell-tale signs. These reflect on the process of governance. Recall, the Union Home Minister Chidambaram eloquently talked of a governance deficit some days back. Sadly, according to the Global Hunger Index, rampant food insecurity across the country has resulted in India being now clubbed with minor economies like Bangladesh, Yemen and Timor.

Pertinently, the corrective path is yet to be seen. This may result in the growth story going awry. Already the World Bank, a proponent of corporates, has of late started expressing concern over the high inflationary trend and the International Monetary Fund about job losses. Manmohan Singh along-with Dy Chairman of the Planning Commission MS Ahluwalia might take a cue from them and usher in a different kind of reform process than the 1991 model. This calls for a low tax, low interest regime and reverting back to the concept of a welfare State.

True, “reformers” might scream that it would kill the corporates as their profits would come down. Yes, it has to. Profit is not exploitation but sustenance at a comfortable level. If the jungle is cleared of deer and minor animals, the tiger would also not survive. Corporates certainly are not devouring tigers. They would have to take care of the benefit to society.

Remember, profit is for the few, the company and its small band of shareholders. While governance is based on the concept of benefits to all. One expects the Prime Minister to tell this to the nation. An image recovery is possible only by adhering to this basic approach and not ignoring the people. ---- INFA

(Copyright, India News and Feature Alliance)