People's Democracy

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


No. 15

April 20, 2008



Intensify Struggles Against Price Rise

AS we go to press, the joint nationwide protest movement against the relentless price rise called by the Left parties and the United National Progressive Alliance (UNPA) begins. This week - April 16 – 23, 2008 - will witness countrywide mass protest programmes demanding of the government immediate action to contain this run-away inflation, particularly in the prices of essential commodities imposing unprecedented burdens on the people. This protest movement concretely demands:

Instead of meeting these demands, in the interests of protecting the people’s levels of livelihood and strengthening the economic fundamentals of the country, the government has been arguing that this price rise is due mainly to the global rise in the prices of essential commodities, particularly foodgrains. Yes. It is a fact that certain developments, internationally, are mounting inflationary pressures. The steep rise in the oil prices does impact agriculture as oil is an essential input in agricultural activities raising, consequently, the costs of production. Yes, again, that the emphasis on bio-fuels is leading to a shift in the usage of foodgrains away from feeding people. For instance, this year, 20 per cent of Maize production in the USA is to be used for bio-fuels. The amount of Maize required to fill the tank of an average car is equivalent to the annual consumption of a well-bodied man. Yes, again, there is a deep agricultural crisis in many countries of the world leading to a fall in the production of foodgrains. All these put together are impacting on raising the prices of foodgrains globally.

While these have been developments that have been occurring over a period of time, the main factor that contributed to the phenomenal rise of prices of foodgrains has been the large-scale speculation in forward/futures trading in foodgrains globally. In the year ending February 2008, the price of wheat has risen by a whopping 92 per cent globally. That of Soya bean rose by 65 per cent. Similar is the case with all other essential commodities.

Why is this happening? This is directly connected with the deepening recessionary conditions in the USA triggered by the sub-prime home loan crisis noted in these columns earlier. Many a financial corporate has been liquidated in this crisis. In order to cut their losses, global financial giants, seeking greener pastures are heavily indulging in speculative trading in commodity exchanges particularly in foodgrains and other essential commodities. This is what explains, mainly, the sudden spurt in the rise of prices of these commodities during the course of last year.

The main issue is how to insulate ourselves from these global pressures? In the past, through a procurement and distribution mechanism, India had, by and large, insulated itself from global speculation. However, since embracing the trajectory of neo-liberal economic policies, these mechanisms have been vastly diluted and are on the way of being abandoned. Permitting huge multinational corporations to purchase and store foodgrains has resulted in a sharp fall in the governmental procurement of foodgrains. Though the production of wheat rose from 69 to 75 million tonnes between 2005-06 and 2006-07, the procurement has been constantly declining from 16.8 million tonnes in 2003-04 to 14.8 million in 2004-05 to 11.1 million in 2005-06. As a consequence, the Commission of Agricultural Costs and Prices estimates that by October 1, 2008, the bufferstock of rice would be 5.49 million tonnes as against the norm of 5.20 million tonnes. In the case of wheat, this would be 10.12 million tonnes as against the norm of 11 million tonnes.

In other words, the liberalisation trajectory has not only made India defenceless and more vulnerable to global speculation, but has also perilously pushed India to the brink of food insecurity.

Big multinational corporations involved in speculative trading in foodgrains maximize profits by ensuring a) the government should not have large stocks to dampen spot prices, b) private operators must have sufficient stocks to deliver and have the capacity to hold the stocks till prices rise, and c) there should be no support system like the public distribution system which `disrupts’ the market operations resulting in superprofits for these operators. The London Economist magazine estimates that the commodity exchanges market in India transacts value of over $3 billion a day. During the second fortnight of March, the total value of trading at the commodity exchange market was a huge Rs 2,12,465.17 crores. The cumulative value of trade in the exchange for the financial year ending March 2008 was a whopping Rs 40,65,989.47 crores. Is it a surprise that given such huge operations of speculative capital that the prices of foodgrains are galloping. The volume of futures trade at any point of time is many times higher than the actual levels of production. For instance, in 2005-06, the production of Guar seed was 6 lakh tonnes. The volume of futures trade in the Commodity Exchanges was 1,692.6 lakh tonnes. It require only common sense to realise the pressures on the prices under these circumstances.

Take again, the instance of Arhar Dal. Domestic production was 10 lakh tonnes. Approximately 5 lakh tonnes were imported. As against the availability of these 15 lakh tonnes, the volume of futures trade in the same year was 137.39 lakh tonnes. Same is the situation with all other commodities.

The only way to insulate ourselves from the international speculation is to reverse the process of liberalisation in commodity trade and to prohibit futures/forward trading in essential commodities.

In the last year of its government, the UPA must at least now discharge its responsibilities towards securing a decent livelihood for the aam admi. The popular struggles to force the government to implement the above noted demands must be strengthened both in the interests of the country and the people.

(April 16, 2008)