Economic Highlights

New Delhi, 20 June 2014

To Check Prices & Monoplies

SLEDGE HAMMER NEED OF HOUR

By Shivaji Sarkar

The economy is in shambles. Undeniably, Prime Minister Narendra Modi is right in echoing his views of being tough to tackle it. A severe malaise needs strong dozes of medicines. But a patient lying on the bed for years has to be tackled carefully as too strong medicines might prove fatal. Consequently, his antidotes even though right have led to a jittery response from the sick. Indeed, the doctor is in a dilemma.

Notably, he has asked his Ministers to change tack wherein rising prices has be given top priority. Towards that end, Modi’s Government is sending signals that it is acting on food inflation through a slew of measures. The Railway Minister Sadanand Gowda has postponed a hike in rail fares, a move that the outgoing UPA Government had initiated on 16 May, the day poll results were announced. Pertinently, a crude piece of politicking to create a “moral” dilemma for a new Government.

Indeed increasing prices are a challenge which requires a politico-economic solution. Specially against the backdrop that during the past few years a kind of mafiosi developed to convolute the market that was supposed to be the epitome of solutions. This has gotten into every aspect of business to stoke prices and rake up profits. Thus, mere announcements of releasing food grain might not achieve results unless it is backed by strong action as well, under the Essential Commodities Act and other laws.

Importantly, it is no more small businesses or hoarders that determine prices. Large corporates, either through direct operations or functioning through funding “adhatiyas” (traditional wholesalers) control the market whereby, onion, potato and tomato prices are being manipulated through this mechanism.

It also needs to be probed how proliferation of large Indian retailers is jacking up prices through cartelisation. While FDI in retail remains controversial, it apparently has benefited the indigenous not so honest big businesses. Mere economic measures might not be enough to contain them.

Clearly, Modi has to act with a sledge hammer. The motto of business cannot be fleecing and high profits. It has to serve the people and growth. If that is not being achieved such businesses should be told either to behave or fold up. The Government also needs to find out why the Competition Commission has failed to act in these cases.

Further, it also needs to have a relook at reviving the MRTPC. The US and most western countries have strong anti-trust (monopoly) laws to keep a check on the market despite shrill cries of the multi-nationals for having “corporate sovereignty”. In a nation, only the people are sovereign. There cannot be dual sovereignty. The Government’s tough action on erring businesses would have strong popular support.

The Government has also to look into the aspects of proliferation of some large corporate into direct or disguised farming and selling of packed rice, wheat flour and other agro products. Their profits even in the most difficult economy have soared to around 40 per cent. Some of these consumer farms, with large foreign holdings, through forced mergers and acquisitions, have become largest monopolies. They prevent any semblance of competition through strong-arm tactics. The high profits are used for lobbying and interference in governance through the bureaucracy and continue with their stranglehold.

There is no gainsaying that tough steps are needed to make them fall in line and understand that people have the powers to strike back. The argument of it shaking “business confidence” is false. Such steps would increase actual competition and bring down prices on a permanent basis. It would also benefit entrepreneurship. Measures for creating a string of small businesses to break the monopolies are an immediate and long-term need.

None of these require amending laws. Existing laws are enough to act.

Additionally, petroleum prices ought to cause worries in the wake of developments in Iraq and a possible flare up in the region. The Government’s petroleum companies have failed to take advantage of oil imports from Nigeria, where crude prices are less than the international market. A private company is raking up huge profits as it has replaced even US in it imports from Nigeria. It calls for a probe why oil marketing companies ignored this to keep their import bill low.

The pricing of indigenously produced crude for domestic consumption also needs to be reviewed. Production cost in India is far less than international prices. Almost 30 per cent of needs are met through spudding oil onshore and offshore. Through a mix of imported and indigenous average oil prices this can be achieved to keep the fuel price at affordable limits. This would have a sanguine effect on the cost to the people. The prices for domestic consumption could be kept at lower rates.

Another strong signal could be given through the rejection in a hike in the KG Basin gas price given that a strong economy requires cheaper fuel. The KG Basin produces cheap (at less than $ 2) but intends to sell at high price (Rs 8). A reversal would lubricate the economy.                         

In addition keeping transportation and energy cost low have to be the priorities. These prices have cascading effect. Wages are determined by these factors. If prices could be checked, wages also would remain under check. This could generate more jobs. High wages have led to slump in jobs. Higher wages mean steep business costs and again higher prices. This has to change.

The Government has also to take a call on whether it would like to have impetus – subsidies to big business, or real relief to the farmers, who remain the pivot of Indian economy, though western trained planners and economists ignore this. Howsoever any dispensation might wish it has to live with subsidies be it in name of MNREGA or food security.

Reorienting subsidy to the farms would benefit the country not only for now but for a secure future. Food prices have to be kept low not by depriving the farmer but by integrating him and 70 crore others who work with him. The farm sector must not be corporatized. It would throw crores of people without sustenance. Food security law is like putting the cart before the horse. It has to be reversed so that the farm sector becomes the backbone of the economy.

There is scope of being tough without affecting the common man. One hopes such decisions would check the prices, boost confidence and spur the economy. -----INFA

(Copyright, India News and  Feature Alliance)