Economic Highlights

New Delhi, 7 November 2014

The Great Indian Loot

STOP SOCIETY EXPLOITATION

By Shivaji Sarkar

It is open loot through the free pricing mechanism. As the wages in India shrink; one pays more and buys less. Little is left in the pockets of an average wage-earner but the profits of companies in the fast moving consumer goods (FMCG), milk, housing, pharmaceutical and other areas rise phenomenally.

Significantly, the lack of a social mechanism to check the process of fixing prices is playing havoc with the economy and plight of the poor consumers. While the companies are thriving by raising prices of every product as a new batch enters the market. The FMCG companies like Hindustan Unilever (HUL), Colgate and Indian Tobacco Company (ITC) have raked in a mean profit of 82.04 per cent during the past five years. Others like the Tata group are not much behind. Housing companies have more than tripled their prices and have profits of over 60 to 80 per cent.

Undeniably, the loser is the consumer and of course the Government, as in most cases it is paid taxes at the base lowest prices. Alongside, wage increases have either been in the range of three per cent or remained stagnant.

Importantly, free market does not mean free loot of the consumers. The myth spread by Manmohanics that nobody should interfere with the price-fixing mechanism of the producer is playing havoc. Wherein, the cost and prices have little relationship.

As it stands inflation indices give an erroneous picture. The recent ‘slump’ in wholesale and consumer indices does not indicate a fall in prices. The indices indicate that after run away inflation of over 44 – to 46 per cent since 2009-10, the rate of increase has slowed over the already prevailing high prices. Not one commodity has become cheaper. Rather food items, vegetables --- potato, tomato, onion included, all other packed goods and items of everyday use have become costlier.

Even milk prices determined by milk cooperatives like Mother Dairy and Amul have increased prices from Rs 12 to Rs 48 a litre though benefits to dairy farmers have not matched this.

Notably, the Narendra Modi Government which succeeded an inefficient and ineffective UPA regime will have to do a lot to give succour to the people. This is needed to be done not only for economic reasons but also for social and political purposes given that high prices weaken the economy and the currency as also the social fabric which leads to severe law and order issues.

Another aspect often not talked about, is it robs the Government, the largest consumer, of sizeable revenues. This is the surmise of a paper produced by the Lok Sabha secretariat in September 2013.

It avers, “The rrising prices adversely affect the economic conditions of fixed-income groups, particularly wage earners. When prices are high, the value of money is low and vice versa. There is always a lag between price rise and money-wage adjustment. Poor people in the unorganised sector are hit the worst because their income is not linked with the price index.

“However, business firms gain during price rise because the money value of goods in their stock rises continually. Inflation also encourages hoarding of essential commodities, leading to speculation and generation of black money”. In short, it is defeating the objectives of the NDA Government.

Pertinently, the companies have devised novel ways to increase prices. Companies such as Hindustan Unilever, India’s largest FMCG company, raised prices of soap brands Lux and Rexona by 11 and 16 per cent in the last six months of 2012, respectively. According to financial services company Edelweiss report, for the Lux brand, the weight of a strawberry variant pack was reduced from 100 gm to 90 gm.

Add to this, the Kolkata-based Emami group raised the price of its Boroplus antiseptic cream by 7.1 per cent, while Colgate increased the prices of its toothpaste brands five to 13 per cent, respectively. Procter & Gamble augmented the price of its Ariel detergent by about five per cent. The company’s Head & Shoulders shampoo recorded a price rise of 5.1 per cent in December 2012, stated Edelweiss.

Undoubtedly, prices are being raised annually in this manner topped by the weight or volume being reduced. Interestingly, the rise in prices, however, comes at a time when commodity prices are softening, adds the report. “In the last few months, the prices of key inputs palm oil and copra fell 30 and 20 per cent respectively.”

It is just not the private companies but also public sector organisations like railways, road transport corporations which are unethical in fixing fare and freight rates. They increase the fare and freight charges on the pretext of higher fuel prices but when these prices come down they never reduce these. The railways have also increased fares phenomenally via the so-called ‘premium’ trains, run with rejected coaches.

Alas, the private sector does not care for niceties. They consider high profit as seemingly their birth right. Worse, our liberalised economy does not have a yardstick about how much profit is realistic or ethically should be there? The obverse of a socialist economy which meant either no profit or a realistic mark-up of  overall seven to eight per cent, something even capitalist economy accepts.

Besides, an Indian Journal of Applied Research Rajkot study in June 2013 found that HUL, Colgate and ITC have a mean profit after tax (PAT) of 82.04 per cent. Individually, from 2008 to 2012, HUL’s profit varied from 87.2 to 142.7 per cent; Colgate 104 to 156 per cent; and ITC 15.7 to 18.7 per cent. Is this not exploitative?

Notwithstanding, the FMCG sector creates employment for about 30 lakh people mostly in low-paid jobs in downstream activities and the total market of these companies is in excess of Rs 850 billion. Shockingly, its wage bill is one of the lowest. Take HUL, it has virtually taken over many contenders to create a monopoly and beat the competition.

Further, all these companies have penetrated different political Parties to sabotage policy-making. They had forced the UPA Government to dismantle the Monopolies and Restrictive Trade Practices Commission (MRTPC) and create a lame-duck Competition Commission.

There is no gainsaying, the NDA Government has to take a call on these widespread malpractices. Society too has a role in checking the weird behaviour of any of these companies. Given that corporate sovereignty is not utilised when it comes to deliver social responsibilities, instead it is used only for exploiting society. Clearly, all companies must be dealt with a heavy hand for rampant malpractices that has become the rule. Time to stop the phenomenal loot. ----- INFA

(Copyright, India News and Feature Alliance)