Paying the price

The raging inflation and price rise send the UPA governments political calculations into a tizzy.

in New Delhi

A CONVERSATION in early April at an airport in South India between a senior Minister in the United Progressive Alliance (UPA) government and a veteran Communist leader returning from the national conclaves of the Communist Party of India (CPI) and the Communist Party of India (Marxist) encapsulates the political significance of the raging price rise and inflation that have overwhelmed the country. Referring to the Wholesale Price Index-based inflation rate, which has touched 7 per cent for the first time in six years, the CPI leader asked the Minister: Are you still planning to hold early general elections as indicated immediately after the presentation of the loan-waiving Budget?

The Minister, who has a penchant for figurative speech, responded in his characteristic style: Most of the Ministers in our government may not have your experience in politics and electoral battles, but we are also not that naive as to be blind to a losing political situation when it stares us in the face.

No Minister in the UPA government would have thought on these lines a month ago. In the days immediately following Finance Minister P. Chidambarams Budget announcement of a farm loan waiver worth Rs.60,000 crore, the UPA, particularly its leading component, the Congress, was euphoric. There was a sense of expectation at all levels of the party that the leadership would go in for early Lok Sabha elections.

Although the main reason for this speculation was the waiver of farm loans, Congress circles in the national capital and other parts of the country were agog about other welfare schemes in the Budget, too. These included special assistance to workers in the unorganised sector; financial and welfare packages for the Scheduled Castes, the Scheduled Tribes and the Muslim minorities; and increased subsidy for houses under the Indira Awas Yojana (Indira Housing Scheme). Income tax relief for the middle classes and the proposal to implement the recommendations of the Sixth Pay Commission were expected to augment the political feel good factor in favour of the Congress. Inflation was not even considered a distant possibility. In fact, Chidambaram said he was mindful of the need to keep inflation under check.

Significantly, a large number of these budgetary schemes were designed in such a manner that they would cover the maximum number of potential beneficiaries by October. This was perceived as further evidence of the UPAs intentions to advance the elections, which should normally be held in May 2009. This perception was shared by large sections of the Congress as well as independent observers and Opposition politicians.

But in less than a fortnight, the writing on the wall was clear for the Congress. Inflationary tendencies were reported from across the country and almost all segments of the population were reeling under the assault of rising prices, particularly those of essential commodities. The announcement regarding the implementation of the Sixth Pay Commission, somewhat strangely, seemed to give a fillip to inflationary tendencies. By the end of the third week of March, it was clear that the rate of inflation would be much higher than what it was in all the three years of the UPA regime. Consequently, the euphoria in the Congress and the UPA started to wane.

By all indications, the smaller partners of the UPA, such as the Rashtriya Janata Dal (RJD) and the Dravida Munnetra Kazhagam (DMK), were more agitated than the Congress. Talking to Frontline, a senior RJD politician pointed out that the biggest lesson from the experience of March-April 2008 was that short-term populist measures were not the way to address the real problems of the people. What our government, particularly the people in charge of economic affairs, has done is to go for short-term populist solutions for the problems that we ourselves have built up over the years. We have been aware of misplaced priorities in economic management for quite sometime but never got around to airing it strongly. When we finally made the point, we got Budget 2008 and the farm loan waiver. But it seems that it has become a classic case of too little, too late, he lamented.

The sentiments expressed by the RJD Minister have found an echo in some sections of the Congress too. A senior South Indian leader, who has consistently highlighted in party fora the dangers of deviating from the Nehruvian socialist model , told Frontline on condition of anonymity that although the UPA had come to power fighting the Shining India slogan of the National Democratic Alliance (NDA), large sections of the party, particularly the managers of the economy, had not understood the inherent message in that victory. Hence, they persisted with policies that were inclined to favour the rich. Even the insistence of Soniaji [Sonia Gandhi, Congress president and chairperson of the UPA] to focus on programmes such as the National Rural Employment Guarantee Scheme was not followed properly by these leaders. Before Budget 2008 there was some realisation about the misplaced priorities, but the corrective measures have not yet had any effect. It is the cumulative impact of these misplaced priorities that we are facing now, the leader said.

People working in various specialised fields of the economy tend to agree with the opinions of the RJD Minister and the Congress leaders. According to Praveen Khandelwal, secretary-general of the Confederation of All India Traders, an umbrella organisation of 5,000 traders associations from all over India, and Ramesh Chandalahoti, president of the Bangalore Wholesale Food Grains and Pulses Merchants Association, the principal reason for the crisis in the food market is the opening up of the sector to the global economy and big business houses.

Even the retail section has been opened up to big business. Chandalahoti said the government should protect the sector by banning forward trading by multinational companies and corporate houses and try to improve foodgrain production by formulating a long-term production plan and making long-term investments. Khandelwal pointed out that big corporate houses were stocking huge quantities of food commodities and virtually creating a monopoly. He said the confederation had drawn the governments attention to this problem without any success. For prices to stabilise, he said there should be a total ban on speculative trading of commodities, especially essential commodities, with immediate effect.

The manner in which the Central government has systematically ruined the public distribution system (PDS) has been highlighted in this context. The UPA government has cut rice allocation to Kerala, one of the few Indian States that has a well-oiled PDS, by around 80 per cent, leaving the majority of the people to the vagaries of the open market in a chronically food-deficit State. A senior Food and Civil Supplies Department official told Frontline that the most important concern of the State in the context of such runaway inflation is food security. Inflation affects Kerala very badly and the important concern is always about food security. Since the late 1990s, the Central governments policies themselves have become a threat to the PDS in Kerala, whose success was a result of the near-universal coverage that it had achieved. Representatives of the Kerala Ration Dealers Association also pointed out that the reduction in the Central allocation for the PDS in Kerala had had an adverse impact on the price of rice varieties in various markets in the State.

The Confederation of Central Government Employees Federation is of the view that the response from the market indicates that it had expected a substantial salary hike for Grade C and D employees whereas the Sixth Pay Commission recommended only a paltry increase. In the midst of all this, organisations such as the Federation of Indian Chambers of Commerce and Industry (FICCI) have called for supply side interventions to augment the availability of primary articles and industrial raw materials and shunning monetary compression steps such as raising interest rates, which run the risk of depressing industrial production further causing stagflation. The FICCI has suggested a three-pronged approach to curb inflation: meeting the domestic shortfall in primary products through imports and making them available at subsidised rates for domestic consumption; putting in place a concerted programme for agricultural reforms focussing on improving farm productivity; improving the supply of agricultural products; removing transport and other logistical constrains to reach food and other essential commodities to different regions; and lowering interest rates in order to stimulate the manufacturing sector.

Social scientist Shaibal Gupta of the Asian Development Research Institute described the present crisis as a crisis of public finance which has its thrust on free market economy and import. Greater dependence on imports and surrender to global trends are symptoms of the crisis of public finance. Gupta had little doubt that the government was responsible for the present state of the economy as it continued to waver on the issue of price rise.

Kerala Chief Minister V.S. Achuthanandan and other senior political leaders have also pointed out such policy errors. Achuthanandan highlighted the removal of import duty as one such misstep. The decision to remove import duty on edible oil is a big blow to Kerala, he said. One of the important agendas of imperialist globalisation is to destroy internal farm production and capture local markets. Oilseed production in the country went down only because the Central government surrendered to such an agenda. The scarcity in commodities such as edible oil is a planned one. Now the government is opening up our markets to foreign monopolies. The way out of this scarcity is to increase internal production, but the Centre is not doing anything in this respect. Instead, by demonstrating that there is a scarcity of edible oil in North India, the Central government has removed the import duty on palmolein and has pushed coconut farmers in Kerala into tears. As it becomes a losing proposition, farmers in Kerala will lose interest in coconut cultivation. The Centre is thus creating the background for a takeover of Keralas edible oil market by foreign monopolies, he said.

K. Balakrishnan, president of the Tamil Nadu unit of the All India Kisan Sabha, also pointed out that the governments approach in dealing with inflation was piecemeal. The problem cannot be resolved by merely encouraging import through slashing customs duty on commodities such as edible oil and ghee. This has to be seen in the background of the falling seed research operations in the country. MNCs have already brought seed research under their control as a result of which seed production has gone to seed. By stepping up procurement from the present 15 million tonnes to 40 million tonnes, the government can ensure food security to the people. No fall in agricultural production has happened. The government should take steps to stop the hoarding of not only foodgrains but also other essential commodities. The problem concerns distribution, he said. Balakrishnan has called for a ban on speculative trading. Economists and those who represent the interests of various segments of the population are unhappy with the remedial measures adopted by the government and blame its overall policy thrust for the present crisis. The situation, naturally, is providing good ammunition for the opposition parties.

The principal opposition, the Bharatiya Janata Party (BJP), and the functional opposition, the Left parties, have called for widespread agitations against the government on the issue of price rise. Interestingly, they announced their agitation plans on the same day, April 1. Polit Bureau member of the CPI(M) Sitaram Yechury and BJP spokesperson Prakash Javadekar even used identical phrases to castigate the government. They described the governments decision to ban the export of non-basmati rice and reduce the import duties on the crude form of edible oils as too little too late. Both parties have decided to launch nationwide agitations in April. Sitaram Yechury called upon the government to ban immediately futures trading in 25 agricultural items, universalise the PDS, restore the cuts in foodgrain allocations to States under the PDS, and take stringent action against hoarders. Javadekar also made similar demands.

By all indications, the BJP has decided to convert the agitation into a virtual election campaign in Karnataka, Rajasthan, Delhi, Madhya Pradesh and Chhattisgarh, which are due to hold Assembly polls this year. According to BJP spokesperson Ravishankar Prasad, the Hindutva-oriented party is planning to turn the 2004 Congress slogan Congress ke hath, aam admi ke saath (the Congress hand is with the common people) on its head. The BJPs slogan would be aam admi ko kya mila (what did the common man get?).

The Congress has so far confined itself to certain administrative measures and routine expressions of concern by a range of leaders, from Sonia Gandhi to Prime Minister Manmohan Singh to Chidambaram. There are indications that leaders of the UPAs other constituents, including the RJDs Rural Development Minister Raghuvansh Prasad Singh, have called for immediate steps to strengthen the NREGS, broad-base the PDS and the system of delivery of foodgrains to it, and review the sanction accorded to futures trading in the essential commodities market. Raghuvansh Prasad Singh said the extension of the NREGS to more than 600 districts could well be the beginning of an intensive implementation of pro-people measures.

The Congress, apparently, is yet to respond to these suggestions. There is a view in sections of the ruling party that inflation will come down on its own to 5 per cent by June. They say that the current inflationary trend is the result of a decline in prices a year ago and the subsequent rise in prices in the second quarter of 2007. They expect this cyclical reaction to repeat itself this year too. This view, by any yardstick, advocates a non-interventionist policy, hoping that things will set themselves right. But a large number of UPA leaders, including those from the Congress, are sceptical about the efficacy of this laidback approach. They feel that the UPA can get out of this back-to-the-wall situation only by adopting a proactive approach. But proactive in which direction? Right, Left or Centre? That is a call that Sonia Gandhi and her close associates would have to take.

With inputs from Purnima S. Tripathi in New Delhi, Suhrid Sankar Chattopadhyay in Kolkata, S. Viswanathan in Chennai, Ravi Sharma in Bangalore, R. Krishna-kumar in Thiruvananthapuram and Prafulla Das in Bhubaneswar.