People's Democracy

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


No. 16

April 27, 2008


On PMO's Statement On  Inflation & Price Rise

Prasenjit Bose

A delegation of Left parties central leaders met the prime minister on April 26, 2008 and submitted a memorandum listing measures that the government should take to curb price rise. A few hours later the prime minister's office (PMO) issued a statement on the meeting in which, among other things, it was stated that “the prime minister urged all political parties to eschew the temptation of politicising the misery of the people and warned against creating an environment of scarcity which would only encourage speculators and hoarders.”

The following is a rejoinder to the assertions made in the PMO statement.

Assertion 1: “The prime minister assured the delegation that the government is taking all necessary steps to ensure that the recent uptrend in inflation is reversed. He informed the delegation that despite an extremely difficult global situation, with global food, commodity and oil prices rising, the government has been able to ensure that the Indian people are among the least impacted in the developing world. Many other countries have even higher rates of inflation.”

Response: Firstly, global inflation, particularly the increase in food prices, is primarily an outcome of the neoliberal policies underlying globalisation. The surge in global inflation is an outcome of various factors: (i) rising oil prices having a cascading impact on overall commodity prices, (ii) shift of acreage away from food crops and using cereals and vegetable oils to produce bio-fuels in several countries like the US, EU and Brazil, leading to declining food production, (iii) policy neglect by national governments leading to decline in public investment in agriculture, especially in areas like irrigation, productivity enhancing technology and extension services, (iv) withdrawal of the State from procurement and distribution of agricultural commodities, dwindling food stocks held by public agencies and increasing dominance and control exercised by private players in food production and trade and (iv) enhanced speculation in the commodity markets through instruments like futures and derivatives with the involvement of financial entities. Merely citing the “difficult global situation” without identifying the causes and policies responsible for the global inflation is an evasive exercise. The UPA government continues to repose faith in the neoliberal policies and globalisation, which is the root cause behind the global food crisis. There can be no solution to the inflation problem unless these policies are reversed, both domestically and globally.

Secondly, while prices have risen globally in the recent period, the inflation rate in India is certainly not among the lowest in the world. Among 55 countries tracked by The Economist, India ranked 33rd in terms of annual increase in consumer prices (see table). Moreover, the Indian inflation figure, shown in the table, of 5.5 per cent is for February 2008. The Consumer Price Index for Urban Non-Manual Employees for March 2008 released recently by the Central Statistical Organisation (CSO), Ministry of Statistics and Programme Implementation (MoSPI) shows 6 per cent increase over March 2007. This implies that inflation in India is comparatively higher than many countries in the world.

Assertion 2: “The prime minister said that the government is confident of increasing procurement of foodgrains. The government had already increased Minimum Support Prices to this end. He said that indications are of improved food production this year, which will further contribute to increased food procurement. He expressed confidence that this year a normal monsoon is expected and this should further increase agricultural production.”

Response: The record of the UPA government vis-à-vis agricultural production and procurement so far has been unsatisfactory. As far as agricultural production is concerned, the Economic Survey 2007-08 notes: “The overall production of foodgrains was estimated at 217.3 million tonnes in 2006-07, an increase of 4.2 per cent over 2005-06. Compared to the target set for 2006-07, it was, however, lower by 2.7 million tonnes (1.2 per cent)…The overall foodgrains production in 2007-08 is expected to fall short of the target by 2.2 million tonnes, though it is expected to be 10.1 million tonnes higher compared to the second estimates for 2006-07…Over a medium term, there has generally been a shortfall in the achievement of target of foodgrains, pulses and oilseeds during 2000-01 to 2006-07. The actual production of foodgrains on an average was 93 per cent of the target. Actual production, however, was only 87.7 per cent of target for pulses and 85.3 per cent of target for oilseeds”.

On procurement of foodgrains, the Economic Survey 2007-08 notes: “Overall procurement which reached 42.4 million tonnes in 2005-06 declined to 35.8 million tonnes in 2006-07. The decline in wheat procurement in RMS 2006-07 and 2007-08 is attributed to less than the targeted production of wheat, lower market arrivals, high ruling market prices, negative market sentiments due to low stocks of wheat in the central pool, and aggressive purchases by the private traders.” Owing to shortfalls in public procurement and deficit in the central pool, the UPA government had to import 5.5 million tonnes of wheat in 2006-07 and 1.8 million tonnes in 2007-08. The actual buffer stock position of foodgrains as on January 1, 2008, was of 11.5 million tonnes of rice (against a buffer norm of 11.8 million tonnes) and 7.7 million tonnes of wheat (against buffer norm of 8.2 million tonnes). The need to augment domestic agricultural production and strengthen public procurement is paramount. The government needs to improve its performance this year compared to earlier years on this count.

Assertion 3: “The prime minister urged all political parties to eschew the temptation of politicising the misery of the people and warned against creating an environment of scarcity which would only encourage speculators and hoarders. The government is taking all necessary steps to deal with the problem and there is no need for political parties to indulge in scare mongering.”

Response: While the misery of the people is being admitted, political parties are being urged not to “politicise” the issue. This is indeed a very strange argument, since in a democracy, political parties are expected to raise precisely those issues, like inflation and price rise, which cause hardship and misery for the people. The argument that raising the issue of price rise by political parties amounts to “creating an environment of scarcity” which encourages speculation and hoarding is totally fallacious. An environment of scarcity is created only when demand exceeds production and supply. Thus if anybody is to be blamed for the environment of scarcity, it is the government which has failed to meet agricultural production as well as procurement targets over the past two years. It is this failure, which has led buffer stocks of foodgrains falling below the norm, encouraging the speculators and hoarders. Besides, allowing the private players to procure, store and trade freely in agricultural commodities and allowing futures trading in these commodities have also encouraged speculation and hoarding. The UPA government, far from reversing these policies, which were initiated by the NDA government, has moved in the same direction so far. By referring to demands for taking action against hoarders under the Essential Commodities Act as “scare mongering”, it is the government which is directly encouraging the speculators and hoarders.

Assertion 4: “The prime minister drew the attention of the delegation to the fact that agricultural production in India was rising in a robust manner in the 1980s and in early 90s. It is only after 1996 that agriculture has been neglected.”

Response: That the policy neglect of agriculture started only after 1996 is a totally false claim. The Economic Survey 1994-95, which was presented before parliament by the then finance minister Dr Manmohan Singh had noted: “Gross investment in real terms (at 1980-81 prices) in agriculture has stagnated. It was Rs 4636 crore in 1980-81 and Rs 4617 crore in 1992-93 (actual). From 18 per cent of the total gross domestic capital formation in 1980-81, it has declined to 9 per cent in 1992-93. The decline in real capital formation in agriculture by the public sector is more perceptible, as it has come down to Rs 1065 crore in 1992-93 compared to Rs 1796 crore in 1980-81.”

The Economic Survey 1996-97 presented by the then finance minister P Chidambaram further notes: “From 1990-91, even though there is some uptrend in total investment in agriculture sector, the share of public investment in agriculture has fallen…the public investment in agriculture which had been generally rising till seventies, decelerated during the eighties. Public investment in real terms at 1980-81 prices was Rs 1796 crore in 1980-81 but declined to Rs 1002 crore in 1991-92. During 1992-93, 1993-94 and 1994-95 it showed slight uptrend but marginally declined to Rs 1310 crore in 1995-96.” This clearly shows that public investment in agriculture decelerated in the 1980s compared to the 1970s, and there was no major reversal of the trend during the early 1990s. In fact, there was a decline in public investment in agriculture in 1995-96.

Assertion 5: “The UPA government has taken several steps in the past four years to increase agricultural production, to give security to farmers, to improve their financial condition and to increase investment in agricultural research and marketing. The prime minister said he took personal initiative to convene a special meeting of the National Development Council to draw the attention of state governments to the problems in agriculture. He has also launched the Food Security Mission and increased investment in Krishi Vigyan Kendras to promote agricultural production.”

Response: The steps taken by the UPA government to revive agriculture so far have been half-hearted and fall far short of what is required. The agricultural growth rate fell from 3.8 per cent in 2006-07 to 2.6 per cent in 2007-08. While some new schemes have been introduced under the Eleventh Plan, several major recommendations of the National Commission on Farmers have been neglected, like setting up of a price stabilisation fund to protect farmers from fall in prices, reducing the rate of interest on farm loans to 4 per cent, universalisation of crop insurance and expansion of MSP to cover all crops. No serious effort has been made so far to expand public procurement operations. The loan waiver scheme announced in the recent Budget also excludes bulk of the farmers from dryland areas as well as those under the grip of private moneylenders. Suicides by farmers continue unabated.

The thrust of the agricultural strategy of the government continues to be on expanding the role of private corporates in procurement, warehousing, marketing and contract farming. The US–India Agricultural Knowledge Initiative launched under the UPA government, which has Monsanto and Wal-Mart representatives as its board members, seeks to reorient Indian agriculture into a foreign and domestic agribusiness driven sector, refashion the agricultural research system as well as the patent regime in India and increase the stranglehold of MNCs in the agricultural input market. Efforts to push the anti-farmer Seed Bill, moves to allow FDI in Warehousing and Retail Trade and efforts to amend the Forward Contract Act in order to allow FIIs into the commodity futures market, reflect the neoliberal policy orientation of the UPA government.

Assertion 6: “The government will closely monitor the situation and take steps to strengthen the Public Distribution System and food procurement system in the country.”

Response: The Public Distribution System (PDS) has been weakened, first by replacing the universal PDS by a Targeted PDS in 1997 and then by gradually weakening the system of public procurement and cutting back on foodgrain allocations to the states. This has been done to cut down on food subsidies on the one hand and to favour foreign and domestic corporates involved in agribusinesses and organised retail trade on the other. The National Common Minimum Programme of the UPA government promised that the UPA “will work out, in the next three months, a comprehensive medium-term strategy for food and nutrition security. The objective will be to move towards universal food security over time, if found feasible.” Four years later, this remains an unfulfilled promise. Even in the Budget 2008-09, food subsidy has been increased by only about 3.5 per cent over 2007-08 (RE), which, in the backdrop of a 6 per cent inflation rate, amounts to a reduction of food subsidy in real terms. Far from strengthening the PDS, total central allotments of wheat and rice to the states were cut drastically in 2006-07 to the tune of 137.6 lakh tonnes from last year. The cut in allocation was almost entirely for the allotments under the APL category.

The system of targeting has meant massive exclusion. According to NSS 2004-2005, 70.5 per cent of all rural households, 52 per cent of all agricultural worker households, 60.7 per cent of all rural scheduled caste households and 55.4 per cent of all tribal households either do not have any ration cards or have only APL cards. Such massive exclusion can be reversed only by universalising the PDS. The methodology of poverty estimation followed by the government and the process of identification of families below the poverty line (BPL) are deeply flawed. According to the Planning Commission, only 27.5 per cent of our country's population is BPL (2004-05), calculated on the basis of a poverty line of monthly per capita consumption expenditure of Rs 356.30 for rural areas and Rs 538.60 for urban areas. However, the Report of the National Commission of Enterprises in the Unorganised Sector (based on NSS 2004-05) has noted that 77 per cent of India’s population, that is, 83.6 crore persons, spend less than Rs 20 per head per day (or Rs 600 per head per month). The National Family Health Survey of 2005-06 has also shown that 40 per cent of India’s children under three years of age and more than one-third of women are underweight while 70 per cent of children and 55 per cent women in India are anaemic. To use flawed official poverty estimates, in this backdrop, to determine food allocations for the Targeted PDS is to deny the poor their right to food. However, the UPA government has continued to defend the Targeted PDS and stubbornly refuses to universalise the PDS. Talking about “strengthening” the PDS without taking concrete steps to universalise it as promised in the NCMP, is quite meaningless.