Economic
Highlights
New Delhi, 4 June 2010
UPA-II Report Card
RISING PRICES & LOPSIDED PROJECTION
By Shivaji Sarkar
The rising prices and
studied silence on agricultural reforms and growth signifies the UPA-II. Sadly,
the report card does not even acknowledge that prices are rising, poverty is
increasing and there is a need to have a fresh look at agriculture and food
production.
Prices are rising every
week and marginally vary in points. This week it rose to 16.55 – a jump of 0.32
per cent over the previous week. The rise was driven by items of primary use –
pulses, fruits, milk, potatoes, fish. This is not to say that prices of other
food items including rice and wheat have shown any declining trend.
The Government’s silence
on prices is rather intriguing. The report card does not suggest any action
plan to contain it. It seems as if inflation is not an issue at all though the RBI
and even international agencies are extremely worried over the situation.
In a way the projection
of figures is lopsided. It creates the view that prices have risen at a
particular level. This is the greatest myth. Prices or inflation is presented
week to week comparing it with the corresponding week a year back. It does not
take into account the continuous rise of prices of commodities. The Government
has been able to create an illusion that prices are rising around 16 per cent
and thus it is “in control of the situation”.
The figures, however,
suggest the contrary. The food price rise is hovering around 20 per cent on an
average. If prices of some commodities that are continuously rising are taken
into account, it
would be found that many
items have become dearer by over 30 per cent in a year and some like butter
have become doubly expensive i.e. 100 per cent increase.
Pulses have become 30.84
per cent expensive, fruits 13.74 per cent and milk 21.12 per cent. Butter
prices per 100 gram that was available for Rs 12 a year ago is now being sold
at Rs 25. Edible oils have also become equally dearer. Importantly, the price index
does not mirror the whole situation and is only indicative.
The rise in prices is no
more restricted to food items. There is a spurt in prices of rubber, raw silk,
jute and oils for industrial use and other non-food items. Within a week these
have risen as per the index by 0.4 per cent and are continuously on the rise.
The RBI had expressed
concern that food inflation would spill over while releasing the monetary
policy. Now the international agency, Goldman Sachs, has found the situation
equally grim and predicts a continuance of the inflationary situation through
the year.
The Goldman Sachs’ view is
contrary to what Prime Minister Manmohan Singh has said recently that prices
would come down. If the RBI and Goldman Sachs are to be believed the situation
might go out of control as the food inflation spills over to manufactured and
other items.
The Government has not
realised that food prices decide the wages. Higher food price would force the
industry to hike wages. Consequently, its products would become expensive. This
is likely to have an impact on consumption. If that happens then what is being
apprehended may well turn into a reality.
The apprehension is that
though high inflation has increased the profit of selected people and traders, it
might ultimately lead to a repetition of the European situation. Like Europe, India, despite
a supposed high-growth economy, might slip into a recession. If it becomes
deeper despite realization of money from 3G spectrum sales and some from
disinvestment, the Government might fall into a debt crisis.
Even now the Government
is finding a difficulty in pursuing its flagship social inclusion programmes.
The NREGA, Bharat Nirman and
rural development schemes are facing many road blocks. If prices are not
contained and continue spiraling many of these may only turn out to be mere
slogans and propaganda exercises.
Additionally, recent
studies have come out with grim realities. Growth and employment in Delhi is being driven by
the construction industry, in the wake of the Commonwealth Games. Other
activities have slowed down. It has also come to light that many small
retailers, sweetmeat sellers have closed their shops down being unable to meet
the high cost of inputs in view of the fall in sales.
Though the Government is
keen on projecting the growth at 8.4 per cent, its chief statistician Pronab
Sen says it is difficult to achieve as many uncertainties persist. “Investments
have gone fast but we have a question mark about sustainability. Credit is
growing but not in a way that would support an 8.5 per cent GDP acceleration”,
he adds.
If closely looked into
the depth of his apprehension is linked to the high prices. The commodity
prices decide growth in all large economies. The US has sustained its growth
primarily on this factor. Despite the crisis it continues to heavily subsidise
its agriculture. India,
however, not only does the contrary but also has not tried to evolve an
agriculture strategy after the 70s. Food production has either fallen or
stagnated coupled with the crisis of dismantling of the public distribution
system (PDS).
Indeed, this has left the market totally unregulated. It
is even alleged that some top functionaries in the Government have been helping
those who have been playing with the availability of food, milk and vegetables.
The unregulated market is supposed to be the main culprit for the present
inflationary situation.
Clearly, the Government
needs to have a holistic look at the agriculture production, land usage and
prevention of use of farm land for any other purpose. Almost over 40,000
hectares of farm land has been lost to urbanization and the construction
industry sharks. More hectares are likely to be lost in the coming years. If
remedial action is not taken then the price situation is likely to worsen.
The projected growth
trajectory cannot be sustained on promises. High inflation is leading the
bankers to mull over increasing interest rates. This again is bound to have
impact on the prices and growth prospects.
The Government needs to
have a cogent thought process on the grim situation. Sadly, it is presently engaged
in day-to-day fire-fighting simply to maintain its image. It must stop doing
that. Instead, it must present the country a policy for not mere growth alone but
a strategy for stable price regime, if it wants to really take the country to its
promised trajectory.---INFA
(Copyright,
India News and Feature Alliance)
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