Economic Highlights

New Delhi, 20 June 2016

Govt Grapples With UPA Inertia

PUTTING ECONOMY BACK ON TRACK

By Shivaji Sarkar

It is not easy to manage a bad economy that a Government inherits. And the NDA Administration is afflicted by this heritage herein the economy was infested with severe problems, siphoning of funds, scams, high bank NPAs, monopolized markets and high prices.

Pertinently, some of these like the untimely price hike of food grains, pulses, and commodities have put severe strains as the recent CPI-based inflation climbed by 5.7 per cent on the back of rising food grain, pulses and vegetable prices. The WPI too showed a nominal increase.

To combat this, the Modi Government took actions that include excise duty hike on sugar and creation of buffer stock for pulses. The 20 per cent duty hike on sugar exports not only increased availability but also had a sobering effect on prices.

Importantly, the Government also initiated measures to control the prices of pulses and other commodities. As Prime Minister Modi expressed concern over the situation and asked his Administration to monitor the situation on a weekly basis.

Besides, his call to taxmen for building a “bridge of trust” is also extremely timely. The Prime Minister should now also look at how personal income tax reduces with inflation.

Alongside, Finance Minister Arun Jaitley announced the Government’s plan to utilise the price stabilization fund to check prices. Till date it has utilized Rs 630 crores for the creation of a buffer stock for pulses and onion.

The Government is also importing pulses from many countries including Myanmar and Panama. Also, the Administration is keeping a strict eye on warehouses to make sure private importers do not make use of the shortages in the market.

True, the Government needs to be proactive in difficult situations. Towards that end, it is making appropriate noises. But the steps need a deeper look as importing staple dietary needs like pulses might be a short-term approach.

Notably, for a long-term solution a new look economic steps are needed. An example: The pulse production has been falling for over the last 25 years and piecemeal steps to increase it have not worked.

Asserted Food Minister Ram Vilas Paswan the domestic demand veers around 24.6 million tonnes against a production of 17 million tonnes. Worse, the recent drought has increased the availability gap by 7.6 million tones even as the Centre built a buffer stock of 15 million tonnes.

Undeniably, these measures show the intent of the Government. However, its pricing formula of buying at Rs 66 a kg and allowing the States to sell at Rs 120 a kg is a bit puzzling.

Questionably, if the Government itself allows so much of margin for one commodity, it is likely to set an improper example for other businesses. Indeed, nobody doubts its intention but the Government has to take actions that are business-like. As such huge margins raise many questions, including effectivity of the proposed steps.

In fact, the Government itself is not supposed to be in the business of onion or pulses. Yet, the citizens expect it to create an atmosphere of checks and balances in the market. Certainly, the recent moves are indications of the Government’s seriousness.

But if the Administration makes the right moves, it might create situations similar to that during NDA-I under Prime Minister Vajpayee tenure. Whereby, prices were one of the lowest and the nation remembers him for that.

Undoubtedly, the Modi Government has initiated moves, if these are taken forward properly, it could have a similar sanguine effects.

Alas, during the UPA I and II years, thanks to its inertia lots of convolution took place in the market wherein there was monopolization by some big groups and their profits bounced several fold during 2004-2014.

Shockingly, some of these corporates earned annual profits of 80 to 142 per cent, abnormally high by any standard, while some other business houses had average profit ranging between 20 to 40 per cent. Clearly, underscoring that these corporates increased prices of various goods, cosmetics and commodities manifold. They also boosted the prices by forcing people to buy in bulk.

Arguably, should the Government be held responsible for such malpractices? Not at all. But at the same time, no Government can absolve itself of any irrational and unethical practices in the market or society.

Further, the Modi Government needs to look at these aspects as well. Whereby, large groups should be prevented from having a way of their own. Also, in the new marketing and investment scenario, these are some of the critical areas requiring deft handling.

A case in point. Recall, AT&T had become too powerful about two decades back wherein the US Administration used its anti-trust laws to clip its wings. Plainly, that was too drastic. However, for the functioning of any democracy, the Government must arm itself so that no one should be in a position to defy it.

In sum, such steps and institutions of regulators are a necessity so that the Government can free itself of looking into trivialities. Obviously, the Modi Administration has the capability to create mechanisms so that nobody can trade on the miseries of the people. Be it shortage of commodities, delayed deliveries or none at all as in the housing sector, hiking prices by car manufacturers of the same product/engine branding with euphoric names.

In addition, food prices are not the only items that need the Government’s attention. Presently, India is aiming to become a large producer with its Make in India and many other programmes.

Bluntly, price stability is sine qua non. Normally markets do it on its own. But the political conditions and Executive moves ensure that no volatility takes place. Healthy conditions along-with appropriate competition and no cartelisation have to be created.

It is also essential for quality and right prices. The manufacturing segment too has to learn to thrive with affordable prices and good practices. If it is sliding, the fault is not only of the economy but also the practices of many producers.

Significantly, a key to maintain prices and wages is adequate farm production. Remember, during 2004-2014 it either stagnated or dwindled. We need to realize that India remains a farm-based economy. And poor farm conditions hit all.

The Modi Government has started giving this a fresh look. It shows positive growth and if this is maintained and farms become profitable, it would have an optimistic effect on prices and the market.

The Government should appear invisible but must be alert. It has to ensure benign interventions. The easier life of the people is, the more comfortable it would be for the Administration. The nation has many hopes and expects the economy to be put back on the rails. ----- INFA

(Copyright, India News and Feature Alliance)