People's Democracy

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


No. 09

March 04, 2007



Imperative Of Course Correction


THE results of the recent elections to the state assemblies in Punjab, Uttarakhand and Manipur have come as no surprise. Except in Manipur where the Congress may cobble up a majority, in both Punjab and Uttarakhand, the ruling Congress governments faced decisive defeats. To all those familiar with the election campaign, it was clear that there was a strong degree of popular discontentment centering around the run-away inflation especially of essential commodities of daily use. Price rise played such a crucial role in determining the outcome of these elections that many state leaders of the Congress party ascribed the defeat to factors beyond their control in the state.


The singular failure of the UPA government at the centre to check this run-away inflation has had its political fallout. Given this, the UPA must draw proper lessons by realising that it will continue to be a helpless spectator as long as it adheres to its faulty analysis concerning the cause for this current inflation. The UPA government has been advancing the argument, now endorsed by the Economic Survey 2006-2007, that inflation is the direct consequence of high levels of economic growth in the country. Their logic is as follows: Due to the high growth rate, there is an increased liquidity (i.e., money in the hands of the people) and as supplies of commodities are not being able to meet this increased demand, prices are rising. The president of India, in his address to the joint session of parliament, also advanced similar logic.


Nothing can be farther from the truth. Increased prosperity of the people resulting in increases in purchasing power do not gel with ground level realities of farmers’ suicides and rising unemployment. The fact of the matter is that the current run-away inflation is not due to increased liquidity in our economy, but is mainly led by a galloping rise in the prices of all essential commodities. This is happening mainly due to the fact that the UPA government continues the earlier NDA government’s decision to permit forward trading in essential commodities. This has brought speculation into the essential commodities market. In the last three years, there has been a whopping 600 per cent plus increase in the total value of commodities traded in the futures market. This is permitting two obnoxious processes. First, the farmers are being deprived of any benefit of higher prices since the commitment to buy their produce is taken by the trader much earlier. Hence, they get relatively low price for their produce. Secondly, the trader releases the essential commodities into the market only when the prices shoot up due to artificial shortages. 


Clearly, unless such forward trading is stopped forthwith, no check on the current price rise can be brought about. Unfortunately, instead of doing this, the UPA government wedded to its erroneous analysis is taking measures such as increases in interest rates, reduction in import duties etc in order to curb the effects of an illusory rise in liquidity in the economy. Apart from being destined to fail miserably to control the price rise, some of these measures will have serious negative consequences for our economy. For instance, the reduction of customs duties, some of them to zero levels, is bound to adversely affect domestic production of these commodities with the consequent negative impact on employment. 


Those who fault our analysis will do well to note that under the pressure from the Left parties, two weeks ago, the government suspended forward trading in urad dal. While the price of urad dal in the retail market may not have decreased but unlike all other commodities traded in the futures market, its price has not further risen. And, this is the point. Unless forward trading is immediately prohibited in essential commodities and the distribution of these at fair prices through the public distribution system is ensured, the people groaning under the onslaught of this price rise can be provided no relief. 


On the larger canvas, these election results must compel the UPA to take a serious re-look at the economic policies that it has been pursuing in the last over two years. This must be done, importantly on the basis of the commitments that the UPA government has given in its Common Minimum Programme. Four of the six basic principles of the CMP deal with various aspects of improving the livelihood and welfare of our people. The Economic Survey 2006-2007 has highlighted two issues within this CMP framework. These are to ensure high growth with inclusiveness and to sustain this high growth without running into high inflation. The CMP had promised significantly increased expenditures on the social sector particularly on education and health apart from ensuring rapid growth in employment.


What does the Economic Survey tell us on this score? The total expenditure on the social sector as the percentage of the GDP declined from 28.26 in 2001-02 to 27.19 in the budget estimates of 2006-07. In recent years, the actual expenditures have been far below the budgetary estimates. When the actual figures come by, this expenditure may be lower. What is worse is that there is a decline in the current year when compared to the first year of the UPA government – 2004-05. The CMP promised to increase allocation on education to at least 6 per cent of the GDP from the 2.79 per cent that it inherited. Through the last three budgets, it has now grown to a dismal 2.87 per cent. Mind you, all these figures are for the combined expenditures of the central and state governments.


The CMP promised to increase health expenditures to at least 3 per cent of the GDP from the 1.26 per cent that it inherited. In 2006-07, it has grown to a mere 1.39 per cent. The trend, therefore, is far away from moving towards meeting the promises made in the CMP. 


As far as the employment scenario is concerned, the situation continues to remain dismal. The annual growth of employment in the organised sector between 1994 and 2004, according to the Economic Survey declined by minus 0.38 per cent. In these ten years, the country was, actually, loosing existing jobs rather than creating new ones. The figures given in the latest round of the National Sample Survey quoted by the Economic Survey show that both in rural and urban India, for both men and women, the unemployment rates by most categories have increased. The increase amongst the women, however, is much sharper.


Notwithstanding the various schemes announced by the UPA government and the Bharat Nirman Programme, this is the grim scenario as far as the common man or aam admi is concerned.


The current election results must shake the UPA government out of its slumber and address in right earnest the promises made in the Common Minimum Programme. Intervention by the Left parties and increased pressures through popular struggles must be mounted to force the UPA government to make the necessary course correction in the policies aimed at improving people’s living standards and welfare.