Economic Highlights

New Delhi, 15 January 2011

Industrial Production Falls

YET CORPORATE PROFITS SWELL

By Shivaji Sarkar

The fall in industrial production was inevitable. Very few are surprised at the latest low growth of 2.7 per cent. High prices, interest rates and erosion of income have led to the decline in demand. There is a dichotomy. The growth story is based more on euphoria and phenomenally high corporate profits leading to unreal high prices. In the last three years corporate profit rose in some cases to over 255 per cent cumulatively.

This may be good news for corporates but for the nation it denotes accumulation of wealth by a few and increased suffering of the common man. It also means edging the poor out of the market. The guiding principle should have been integrating them.

Instead, the market principle is based on high and quick profits. Thus the industry groups’ demand to the Finance Minister Pranab Mukherjee, for further stimulus is misplaced. The corporates do not need that. In fact, the stimulus has to be given to the common man so that he could survive. If the Government could not reduce prices it should devise ways to transfer subsidy straight to the consumer.

The common consumer is being made to suffer by all those who can fleece him. It is acerbating with the political unwillingness of the Government to provide any relief to him. Political rhetoric could not save the debt-ridden son-in-law of the much-publicised Kalavati, who was made to host a political luminary. At the same time, profits of Sangli sugar cooperatives in Maharashtra, owned by top political leaders, have shot up.

True, profit should not be a bad word but if it is based on the concept of manipulation, hoarding and fleecing, the Government needs to strike back. Its reticence remains unexplained. It is strange that when the industry groups met Finance Minister for demanding more concessions in taxes, he did not tell them about reducing their profit margins or high prices of their goods.

A recent IMF study has noted a long cycle of rise in corporate profitability since 2001. It says, “Both the balanced panel and large firms (with some overlap between these categories) were typically more profitable”. The high prices indeed were the prescription for large profits. Lower production has not affected them.

It leads to an obvious question. Is the present fall in the production engineered or not? It helps the cartelised corporate fleece the Government by pocketing stimulus --- subsidies. A lower production also helps them maintain high prices on the bogey of an artificial shortage.

The recent rise in onion prices is an indicator. Onion production has fallen only to the extent the country exports it. There was already an overflow of the production from the last year. The sum total is that the shortage in production of onion was limited. The five to six time rise in its prices do not match the production figures. A monopoly of corporatized agro-marketing has simultaneously reduced availability and made onions scarce all over the country.

Importantly, as more corporates are entering the agriculture sector, higher are the prices of food grain. They are edging out the farmer and fleecing the consumer in one stroke. The Planning Commission’s policy makers are seemingly oblivious to this reality. Else, they would not have pronounced a policy of “taking two million people out of the farm sector”.

The void as per the Commission’s policy is to be filled by corporate farming that ensures large profits, marginalisation of the poor and edging the farmers out or simply impoverish them. Recall, the first Prime Minister Jawaharlal Nehru had conceived the Planning Commission to ensure growth and development of the poor man. Under the new dispensation it is seemingly paving ways for development of the corporates at the cost of the poor.

Why does the Planning Commission want to turn small farmers into slaves of corporates and increase poverty? Independent small farm holdings, as we have seen in Nandigram in West Bengal where a SEZ was planned to be set up, employ large number of people directly and indirectly. It leads to empowerment of a large number of people.

Undoubtedly, corporate farms with large investment do just the opposite. It is a simple corporate philosophy ---- higher the investment, lower should be the employment. Clearly, the Planning Commission should stop spreading the myth that corporatisation would create jobs. It does not. Yes, it leads to more Satyam and Nira Radia type of frauds and fuels further rise in prices.

Besides, the corporates have shown that they could withstand RBI-induced reduced money supply and grow on higher profits without taking loans from financial institutions. They now also have the advantage of raising cheap finances abroad. This helps them hold on to their products for longer time and manipulate domestic prices.

An example: The way butter prices were manipulated by a multi-national retail chain by more than doubling its price, from Rs 12 to Rs 25, in about ten months stands testimony to this corporate theory.

The Government alone seems to be worried at the fall in industrial production. None of the trade association has felt concerned at the trend as their profit margin remains intact. As lower production again adds to their margins. The corporates either legally or illegally lay-off the workers whenever there is a production fall or glut. And the losses are simply transferred to the working class in this country. This is why despite higher profitability there has not been a corresponding increase either in employment or in wages.

The recent contraction in sales of consumer non-durables like cornflakes and cosmetics or consumer durables like household goods or appliances reflect the difficult condition the aam aadmi faces. In effect, the consumption of food items and vegetables has also come down, according to National Sample Survey Organisation’s studies.

During the last two years vegetable prices have shot up by 55 to 60 per cent. The consumer buys less and less of it. The Government needs to be wary of this as it would lead to serious nutritional issues and health complications.

In sum, it is time to have a total re-think on Government policies. The Administration and the Planning Commission need to come out of their closet to create people-oriented policies. Whereby, uprooting tribals, farmers or marginal workers would only lead to sinking of growth.

Needless to say, it also calls for the leadership to be more politically oriented as in Bihar and Gujarat or as it was earlier in West Bengal. Bestowing leadership to specialists or economists would certainly lead to formulation of myopic policies that would benefit the manipulators. ---- INFA

(Copyright, India News and Feature Alliance)