People's Democracy

(Weekly Organ of the Communist Party of India (Marxist)


No. 07

February 18, 2007



Price Rise: UPA Government Culpable


THE spectre of inflation is haunting the government. The latest figure of 6.58 per cent increase in the wholesale price index for the week ending January 27, 2007 is the highest increase in the past two years. The relentless rise in the prices of essential commodities, particularly food items, has hit the people hard. The wage earners and the urban and rural poor are finding it difficult to provide food for their families. In the recent weeks, the prices of onion, dals, vegetables and edible oils have shot up further. The price of wheat shows no signs of coming down. The consumer price index for agricultural labour shows an increase from 8.33 per cent in November to 8.96 per cent in December 2006. The price of onions alone has gone up in the last two weeks from Rs. 16 to 26 per kilo in Delhi. 


The UPA government is squarely responsible for the present state of affairs. In the middle of last year, the government claimed that the price rise was seasonal. Later, the finance minister began putting out the argument that inflation is a natural consequence of rapid economic growth. In the recent period, the government and its economic advisors are pointing to “supply” constraints as a main cause for inflation. Despite all these arguments, the government cannot escape the responsibility for its gross failure. The rising inflation and price rise is a direct result of the policies of the government. The argument that inflation is a consequence of rapid growth also does not stand scrutiny. The Chinese economy has been registering rapid growth for three decades. Inflation is currently below 2 per cent in China. 


The wrong policies of the government and mismanagement has led to shortages of supply and price rise of many commodities. The world prices of sugar have fallen sharply. Yet, the retail price of sugar in India continues to climb. The fiasco of wheat imports last year underlined the failure to procure adequate amounts of wheat from farmers because private players are being allowed to corner stocks. Large-scale import of wheat last year did not check the rising price of wheat. The government has failed to deal with the basic causes for the overall slow down in agricultural production. 


A major reason for the rising prices is the UPA government’s refusal to reverse the steps taken by the BJP-led government in 2003 to lift all restrictions on futures trading in agricultural commodities. In the last three years, there has been a huge increase of over 600 per cent in the total value of commodities traded in the futures market. It is not the farmers who are benefiting from the futures trading but a handful of big companies and traders. The government has refused to accept the recommendations of the parliamentary standing committee on food, consumer affairs and public distribution to ban futures trading in essential agricultural commodities. Whether it be wheat, dal, sugar or onions, big traders are profiting by speculative trading and the large mass of small and marginal farmers and the consumers are being fleeced. 


The international oil prices have come down substantially. After the token cut in Rs. 2 for petrol and Re. 1 for diesel in December 2006, the government has refused to restore the pre-June 2006 prices by making a further cut. Neither is the government prepared to do away with the advalorem duty structure on oil imports. The government shows no political will to crack down on hoarding. 


The government has to revise its agricultural policies. Food security and strengthening of the public distribution system is linked to adequate production of foodgrains. Encouragement of incentives to switch from foodgrains to cash crops alongwith other reasons has led to a fall in production of foodgrains. The public distribution system has been systematically weakened in order to cut back on food subsidies. In the union budget last year, there was a cut of Rs. 3000 crores in the food subsidy. The government will have to take urgent steps to strengthen the public distribution system and expand its purview by including pulses and edible oils and other essential commodities. 


Instead of taking these steps, the government announced in January cuts in import duties on cement, capital goods, project imports, metals and chemicals. This was a wrong step. Such drastic cuts in import duty on manufactured items will have an adverse impact on domestic producers leading to deflation and unemployment. Similar cuts in import duty on wheat and pulses did not succeed in bringing down inflation.


Mesmerised by its own talk of having achieved 9 per cent growth in GDP, the UPA government is now facing the anger and discontent of the people due to price rise. The issue of price rise is going to have an adverse effect on the fortunes of the Congress party in the Punjab and Uttarakhand elections. The diehard neo-liberal policy makers in the UPA government will have to come to grips with reality soon. 


The government should immediately put curbs on the futures trading of essential commodities. It must reduce the prices of petrol and diesel further; it should revise the ad-valorem duty structure on petroleum products. It must take necessary measures to boost foodgrains production and ensure adequate procurement. It has to take urgent steps to strengthen and expand the public distribution system. It has to tighten up the Essential Commodities Act and crack down on hoarding with a firm hand. This is the least that the people expect to be done to protect their livelihood and rights.