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India's Inflated Policies

Panchanan Bhoi, Ph.D. - 8/26/2008

The life of the common people is becoming increasingly difficult because of comprehensive price rise across the country. Day by day inflation crisis in India is looming large and the continuing increase in prices of all essential commodities are slowly going out of common people’s reach. There is a steep increase in the prices of food grains, pulses, vegetables and edible oils. Further, the repeated price hike of petroleum products has a cascading impact on the prices of several commodities. Instead of working on the modalities to check the price rise, the central government is throwing tantrums on the state governments. Because of the ruling UPA’s slummy principles India continues to pay the price for not undertaking fundamental monetary policy reform.

The Finance Bill 2008 has given priorities to electoral politics over growth of farmers and agriculture purely on populist reasons. With election in ten states round the corner and general elections not far away, the extent to which politics will get over the economics is an issue of utmost assumption. This year budget proposals as a whole appear that it is not policy-wise different from the earlier budgets of UPA government, but this time Finance Minister’s politics appears to have prevailed over his ethical economics.

Further, the ruling entity UPA’s mission of balancing both growth and populist reasons is a horrific task. The government has on the one hand significantly attained the success to increase the foreign exchange reserves, while on the other hand it’s policies horribly went wrong that resulted in a declining trend in overall economic growth, uncomfortable inflation rate, disappointing growth of agricultural sector, falling exports resulting from rupee appreciation and rising prices of crude oil.

The increasing cost of essential commodities will certainly reduce intake capacity of the commoners’ appetite. The government’s lacklustre policy has allowed the state to deteriorate and decay and it has accused the market for all these flaws. Most of the inflation and price rise, which the country is facing today, are the offshoots of the both NDA and UPA regimes’ poor governance and economic mismanagement. Indian populace is infuriated and is in distress when the current architects of Indian economy Manmohan Singh and P. Chidambaram composed the 2008-2009 budget which later on resulted in the rise of prices of essential commodities. The finance minister’s persistent inability to curb price rise has attributed him as Price-rise Chidambaram. These policy makers think that slow growth in farm output and rising demand are fuelling the prices, food consumption and bio-fuel demand are also pushing up prices. Here one can cite the popular proverb ‘Dark is the nation and insane the king’, where the king sentences a thin man, who’s innocent, to the gallows instead of the fat convict, whose guilt has been proven, just because the noose won’t fit him.

Now the rate of inflation is around 12 per cent, the highest in the last three years. Nowadays the significant indicator of UPA government, which it has used to mislead the people, is the GDP growth. Instead of misleading the nation by manipulating facts, the ruling entity could do better by containing the inflation to 5 per cent so that the predicted 9 percent GDP growth would go up to 11 percent. Today what we need is 11 per cent genuine growth by restricting the inflationary tendency upto a manageable level. Further the stagnation in foodgrain output is a public policy failure. The government’s policy of minimum intervention during post-reforms has led to a systematic neglect of the rural area. In fact, from the year 1997 onwards, there has been a fall in the overall government expenditure in rural development. According to Asian Development Bank (ADB) India’s economic expansion will slow down in 2008-2009 to 8 per cent against the projected growth of 8.7 per cent last fiscal.

Normally the monthly economic report of the finance ministry notes that increase in the inflation rate is mainly caused by an increase in the price index of primary articles and fuel. The large majority of people in our country are in the unorganised sector with fluctuating incomes and no protection against rising prices. While prices have risen, incomes have not registered a similar rise. We know about the acute agrarian distress and farmers’ suicides in many parts of the country. Further, recently few international agencies have pointed to a most disturbing trend of increasing malnutrition in India particularly among children and women.

The prices of agricultural commodities have gone up sharply about 50 to 60% in the last one year while production has remained stagnant. Further, the country’s cultivable land has declined to 182.57 million hectares in 2005-06 from 185.09 million hectares in 1980-81. During the same period, the land under non-agricultural purpose went up to 24.94 million hectares from 19.66 million hectares, resulting in a marginal fall in cultivable land.

Now there is shortage in supply of water, electricity, and prices of fruits, vegetables, oil, gas have increased so much that the budget of the common man has gone haywire. Within a span of one year the price of essential commodities like wheat has been raised from rupees 1700 to 2600, common rice from 1400 to 2000, sugar from 1450 to 1550, soybean 1400 to 2245, turmeric from 2100 to 3382 and so on.

Other aspect of price rise is that people are paying more for basic services like health, education, transport and so on. One of the reasons for rising indebtedness of families is the increasing cost of health care linked to the increasing costs of drugs. Inflation combined with policies of privatisation has forced complete deterioration in the living standard of people.

Though the UPA government says, it has taken drastic initiatives to boost food supply in the long term but it does not have any short-term policy to bring down rising price of commodities. For that we need a mature market economy where both inflation and GDP growth are stable. In a sound monetary policy framework, inflation would be stabilized and inflation crises like this would not periodically hijack the government.

Now it is very tough for the government to consolidate the declining farm earnings unless it manages to tread through the challenges and began the developmental process. The efforts towards the process of farm development should yield dividends and immediately benefit the beneficiaries. Demand can be met by increasing the supply and supply can be increased with the productivity increase. The main thrust in the Indian economy is to increase the productivity in farm sector and services sector to control the prices. For that we need more vibrant policies and incentives for productivity improvements. Hence the priority accorded to the development of farmers is bound to enhance the health of state economy. And this can be possible if all government procurement agencies treat farmers like pantheons. This will certainly boost the incomes of both small and big farmers and will not only enhance their livelihood but also safeguard them from the anguish of suicide.

The government should take appropriate measures to control inflation and check the prices of essential commodities. It must first address the supply side to solve the problem. Further, the Forward Markets Commission should take steps to regulate the futures markets. Till date none of the government measures have succeeded in bringing down the prices of essential commodities resulting in complete mismanagement of essential commodities and sheer failure to bring down prices. Now it is essential for the government keep a tab on speculative trading, hoarding and black marketing of essential commodities.

Further, the UPA government has to focus on timely implementation of infrastructure projects. Improving the infrastructure definitely reduces the cost to do business as well as cost of services. If we ignore the benefits of increased productivity, we are poised to loose a lot in the long run. Agriculture plays a significant source of mobilization in Indian politics, but now it has become more politicised and in the process it has translated itself as a symbol of political expression. Now the opposition parties have joined together and organized regular rallies in different parts of country to fight against every form of discrimination against the farmers. Further, addressing issues like unequal status of woman, inequality based on caste or religion and the preserving individual freedom should be the other major thrust of UPA government.

So long there is discrimination in job, income, education and other areas of opportunities in the Indian social spectrum there won’t be any real development. So, today, what we need is a government of liberal alliance, which would work for India's progress in a vibrant way. Moreover while framing national policies and resolution of various contentious issues, we must ensure that politics and partisan interests do not tarnish them. We have to come out from the narrowness and stultification of thought so that we can insulin fresh ideas in the progress of the society, and the country would profit from a broader spectrum of ideas. After all we live in a democracy and democratic values have to be upheld.