Economic Highlights

New Delhi, 23 July 2012

Manmohanomics Needs Relook

CHART NEW ECONOMIC PATH

By Shivaji Sarkar

It should have cheered all. But record food grain production of 258 m tonnes has instead led to apprehensions. Plainly, high production and higher supply is no guarantee for lower food prices. What to speak of Prime Minister Manmohan Singh’s who is more concerned about storage facility.

Undoubtedly, this is a complex situation. Deficient rainfall has affected sowing of kharif crops, paddy, pulses, coarse cereals and oilseeds. Add to this, Agriculture Minister Sharad Pawar recent assertion that though the country is not facing drought, it is challenging to sustain the record production achieved in the last two years.

Recall, India faced a severe drought in 2009 which led to decline of food grains production by 16 m to 218 m tonnes. Then too, the country had witnessed a linkage in prices and supply. Of late, however, despite a globalised market and entry of large foreign and Indian companies in the food grain sector, prices have risen irrespective of whether it is a good or bad season. Clearly, a case of price manipulation which has thrown basic economic theories to the winds.

Concerned about this, the Union Cabinet meeting last week which reviewed the food grains situation, effect of monsoon failure, export, procurement and modernising public distribution system (PDS), failed to decide a prescription to check prices even as it underscored the difficulties posed by the market forces. Asserted Food Minister KV Thomas, “it is a complex situation.”

Notably, the solutions are not difficult. Namely, strong Governmental action to tame the market marauders. Remember, two decades ago the threat of using the Essential Commodities Act was enough. Today, with global players, India has to hear sermons from leaders like US President Obama, “India limits FDI in too many areas, there is deterioration of investment climate ….”, has forced the Government to act cautiously.

No matter, the Government’s retort that it functions for the welfare of its people, the UPA has not been able to initiate action to ensure a level-playing field. Rather, the Prime Minister’s statement that the Government was mulling how to open up the retail sector to FDI only indicates the success of Obama’s overtures.

Indeed, the country has witnessed that larger the entry of big MNCs and Indian trans-nationals in the food sector, dearer food grains and vegetables become. Think. In 1991, India started its economic reforms and liberalisation. Now is the time to review the ill effects.

Undeniably, global integration has created opportunities but it has also led to miseries for millions who are unable to afford two square meals a day. Add to this, services including health have become extremely expensive.

The much publicised MNREGS, touted as a social security benefit, has literally turned millions of rural workers into lazy bums, who manage to get wages without going to work. Apart from corrupting the poor, it is draining the Government of Rs 40,000 crore a year without creating any wealth or values. Bluntly, this has resulted in an increase in money supply, which is the cause of inflation.

Questionably, should we de-globalise? No. But, it is time the Government reviews its integration with the global economy to the extent how a continued Euro-zone gloom and US job crisis affects the Indian economy. In fact, India did not benefit from the West’s prosperity, except for miniscule export of low-priced goods to these countries. Why should it now bear the brunt for their extravagance?

Pertinently, India progressed during its difficult days thanks to its cooperative experiments, small scale and individual entrepreneurship. Gujarat’s milk cooperatives helped create Operation Flood which sharply brought down milk prices. Along-side, the green revolution by small farmers ensured price stability.

The new “liberalised” dispensation of the multi-nationals is all for profits. According to the Food and Agriculture Organisation (FAO) the current surge in grain prices, coupled with a strong U.S. dollar and economic slowdown in many Western countries which saps consumer demand, is likely to deal a heavy blow to developing countries many of which import grains and export other commodities.

Needless to say, this is a warning and India needs to correct its path. Also, the International Monetary Fund (IMF) in its latest paper “Inflation and Income Inequality: Is Food Inflation Different” states the rate of price rise in food items has led to income inequality in rural India.

Further, non-food inflation has resulted in higher income inequality in rural India. Not only this. The urban poor are worse than their rural cousins given that with fewer jobs it is more difficult for them to avail food.

Importantly, the time has come for the nation to take a call on its open door policy for global players along-with rules to keep large conglomerates from disturbing market equity. An open market without effective Government control, not mere regulations, cannot be the panacea. If prices are to be checked this has to done with an iron fist and not kid gloves!

The myth that foreign direct investment (FDI) can solve all these issues and large retail chains are in the interest of consumers need to be junked. As it stands, during the last 20 years, it has not solved the country’s problems.

In sum, a total review of 1991 Manmohanomics is the call of the day. Given that the GDP growth has not led to people’s happiness and well-being. Instead, more people have lost jobs, commodities are dearer, suicides among the working class and small farmers are on the rise and the growth clock is in reverse gear.

Thus, any new policy decision on allowing FDI or initiating other policies must be put on the back burner till the nation charts out a new course. The West has failed the world. India needs to look for an independent policy different from Bretton Woods.

The belief that the market can take care of the people’s welfare has been belied. The new review has to look for a novel economic path. ----- INFA

(Copyright, India News and Feature Alliance)