People's Democracy

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


No. 51

December 22, 2013


Why Do We Have A Price Rise?


Suneet Chopra


WITH the November 2013 figure for inflation rising to a 14-month high for wholesale prices at 7.52 percent over last year, with food prices soaring to 19.93 percent and fuel and power by 11.08 percent, one need not be surprised at the disastrous defeat of the Congress in the recent elections in five states, with a fledgling party, the AAP, trouncing the Congress in Delhi and preventing the BJP from gaining a majority only reflects the anger of the people against the results of the policies favouring profiteers both by the Congress and the BJP.


Between 2004 and 2013, food prices in general rose by 157 percent. Cereals, the staple diet of the poorest, were high on the scale, with rice at 137 percent and wheat at 117 percent. Pulses the sole source of protein for most of the Indian masses, had risen by 123 percent. Potato, the staple diet of the poorest topped even the highest figure at 185 percent. As for vegetables and onions they had gone quite out of the diet of the poor, by rising upto 350 percent and 521 percent respectively. The amazing thing is that all this was taking place while the central government had been mouthing slogans that it would soon bring the prices down without doing anything about it.


The people have waited in vain for the government to start proceeding against hoarders. But one realizes they are not likely to do that as the Food Corporation of India is the biggest hoarder itself. While its food stocks on October 1, 2013 reported some 24 million tones of excess wheat with various government agencies, but it has not been offloaded as APL or on the market to reduce the prices, one begins to wonder what its game is. Even when the Supreme Court had instructed the government to distribute the grain rotting in FCI godowns earlier, the minister for agriculture declared there were no constitutional provisions for doing so. One wonders then what constitutional provisions are there for starving the people and allowing hoarders to raise prices even as they starve?


But then, as the government is the biggest hoarder of cereals in the country, one can hardly expect it to check lesser hoarders effectively. In fact, the Agricultural Produce Market Committee Act is heavily loaded in favour of wholesalers who not only determine the prices of farmersí products but also run cartels that monopolise these and raise prices for consumers at will. In fact, the governmentís minimum support price mechanism that is being blamed for the price rise too, is pegged at Rs 1350 (now Rs 1400) per quintal for wheat in comparison to Rs 1800 in the market. This is considerably lower than the market price. Even the fair price which has been computed by Dr M S Swaminathan at Rs 1331.73 per quintal for rice in 2011-12 is a far cry from what was being given as MSP, Rs 1250 for it in 2012-13 and a projected Rs 1381.69 for corn per quintal and an MSP of Rs 1175 being given in the same period. Clearly the farmer is being done out of his fair share of profit and the government mechanism is a step in favour of the monopolists and hoarders, allowing them to take even larger profits than they would have got otherwise while blaming farmers for the price rise that middlemen and the government have got together to engineer.


That is why despite the fact that retail food inflation has persisted at around 10 percent, that of cereals is 15 percent-17 percent.  The central government and most state governments have done very little to make things better. This should make us aware of how important government policy is to maintaining the price level. Not only has the government failed to check the price of foodgrains but it has even fuelled it by increasing administered prices under the public distribution system both during the NDA and UPA regimes. At the same time, the increased prices of petrol and diesel have raised transport costs on the one hand and of production dependent on pump-sets, on the other.


The price of rice for the BPL card holders increased from Rs 350 per quintal in 1997-98 to Rs 415 per quintal in 2007-08. In the same period the APL price was increased from Rs.550 per quintal to Rs.755. For wheat, the price for BPL card holders was increased from Rs.250 per quintal to Rs.415 and for APL card holders from Rs.450 to Rs.610 in a period of 10 years. With the cash for food scheme coming into operation now, the prices of rationed provisions will also feed inflation as that money too will enter the market directly. Moreover the quantity of grain per family will go down with the rising prices, so consumption will be far more dependent on hoarders and profiteers led by the government as the biggest hoarder.


Other hoarders benefit from the legalisation of the futures trade in grain which has contributed considerably to the price rise globally and in India, according to a recent UN study. To add to it, the cost of production has risen considerably as a result of government policies. Fertilizer prices of non urea products have more than doubled while hoarders are having a field day with the decontrol of nitrates and potassium based fertilizers. This is in addition to the rising cost of diesel and petroleum products and railway freight that have greatly increased transport costs. Given this cue by the state, wholesalers, who both hoard and monopolise production, are all set to gain astronomic profits encouraged by a government that is committed to squeezing profits even from those living close to famine conditions. 


The price of onions is as good an example as any to illustrate this development. According to a report submitted to the Government of India, as far back as January 2013, the warning was given how 70 percent - 80 percent of the countryís onion trade was restricted to Maharashtra (32.7 percent) and Karnataka (17.6 percent) although onions are the second most consumed vegetable in the country. In fact the biggest producer of onions is the agricultural ministerís home state, Maharashtra. While both these states harvest onions in winter, but given the monopolistic control of the mandis, the small onion producers are no match for the monopolists. Secondly, the traders also provide loans to the farmers and exploit them. As a result, especially as these traders are commission agents and wholesalers, apart from being owners of storage facilities and even order suppliers and transporters, their capacity to arm twist both the farmers and consumers has been allowed by the state to take on devastating proportions. A few Nashik based traders actually monopolise the whole market. According to the report, a single trader in Maharashtra market accounted for upto 20.4 percent of the trade. As a result the country has to pay the bill, with hoarders raising the prices first during the winter season that coincides with festivals like Onam, Durga Puja, Diwali, Eid and Christmas, and then refusing to sell the stock of the winter harvest as happened in 2010-11. Since the government has left the vegetable sector totally in private hands, both the  farmer and the consumer are left to the mercy of profiteers, hoarders and monopolists, with the APMC Act promoting cartels  and not competition.


To add to this the government ignores this fact and helps to raise prices by exporting the surplus just when it should be put out for sale in the home market. In 2010, when unseasonal rains had destroyed the onion crop, traders were allowed to export 1,33,000 tons before the price was hiked. This year the situation is no different. From April to December 2012 India exported 300,000 tons of onions despite bad rains and has continued to do so between January and May this year, sending prices soaring by no less than 244.6 percent since last year.


The same policy is evident in the case of foodgrains too. When foodgrain prices were all set to soar, the Government of India arranged the largest ever export of grain in its history in 2012-13, exporting 10.1 million tones of rice, 6.5 million tones of wheat and 4.8 million tones of corn, so the prices continue to rise. Had this large quantity of grain been diverted to the home market from FCI godowns the prices would not have risen to such heights. But the Government of India was only concerned with the fact that traders had entered into long-term contracts they had to honour. If the people starve as a result it does not matter.


The situation may have been better if the public distribution system had been strengthened by ensuring a universal PDS. Such a move would not only reduce prices of staple foods but also of food in general if fourteen other necessaries of life like oil, sugar and salt were also provided. Domestic hoarding at least would have come to an end as would the governmentís glut of rotting grain. But we find the exact opposite happening. One of the major causes of the rising prices in foodstuffs then is the policies that the governments at the centre and the states have been pursuing over the last twenty years. But another  major reason for the price rise we are suffering from over the last five years is a result also of the greed of the Indian government for foreign investment in the retail trade. So far their most desperate efforts at opening retail trade to foreign investors have failed, so to make the profitability of our retail market attractive for the foreign investor, prices are being allowed to run riot. And it appears from the pressure being put on the US government by marketing agencies like Walmart, every effort is being made to get more concessions from the Indian government than have been given so far. The only advantage this step offers is the chance for kickbacks for the big politicians and bureaucrats who will broker these deals.


The question that we are faced with then is why this move is so important as to be enforced the way it is being done, even at the cost of the lives and livelihood of the mass of Indian people? The answer is clear. The government is directed by a coterie of  people led by the prime minister who are blind economic fundamentalists committed to an archaic understanding that certain laws of the classical development of capitalism cannot be avoided on the path of progress.


What are these principles? The first is that the expanding frontiers of capitalist production require the existence of a population of property-less wage labourers. But the important point is that they are not to be given employment but to be used only as a reserve army of labour to allow the capitalist class to bargain more forcefully with the working class. But if the process creates far more than are needed as a result of mechanization and increasing work-load to wring out more profits, and throws them into a huge population of criminals, goons and mafias, then this process of development becomes destructive to society, calling for the overthrow of the system and of the economic ideas that guide it or the disintegration of the society itself if it fails. This failure will result in anarchic outbursts, wars and the subversion of democratic rights achieved by the working class in struggle. Clearly we do not have a choice in the matter as economic fundamentalists seem to think.


Then there is the principle of the concentration of capital in fewer and fewer hands, which in our country means the dispossession of the peasantry and the takeover of their tiny parcels of land by mafias, agro-industry, planters and so-called developers, which not only increase the number of people in the labour market but also decrease the amount of land available for small scale and cooperative agriculture. That this too has become dysfunctional is obvious from the increase of the number of people below the poverty line, without any assets to live on and those who have committed suicide in our villages in lakhs, creating both chaos and enormous waste of human potential. This is a sign that the path these economic fundamentalists are following is destructive of creative potential and not productive at all despite their parading figures of narrowly based profits as growth and ignoring the broad based increase of poverty with some 84 crore people living on as little as Rs 20 per day.


This state of affairs offers us only one alternative; to seek out a better system of channeling resources in which appropriation of wealth hardly goes beyond private monopolies. Such a system ought to base itself on planning for more employment and a broader distribution of wealth so that the home market develops the capacity to underpin the needs of developmental capital. This requires powerful instruments of democratic institutions right down to the grass root level. Some form of socialist solutions to counter these destructive trends is necessary.


This requires a stiff battle against the trend of corporatisation, market monopolies and speculative financial predators, and for strengthening social ownership, cooperatisation and increased support to peoples needs being met with the resources available as a priority. The most important resource is our large number of labourers living in the villages, we only need to strengthen them with laws like the MNREGA and legislations relating to land reforms. There is enough land to distribute and enough labour to till it. This should become the priority of government policy.


To put up a stiff fight against the price rise with a powerful movement for implementing the MNREGA, a public distribution system that acts against hoarding both by the wholesalers and the state, and more stringent legislation against corruption in the implementation of government schemes, institutions and an effective public control on vested interests looting the assets of the people and driving them to desperation. This can only be done by unleashing organized struggles of workers peasants and agricultural labour on their genuine issues and not letting up till their demands are met. Less than that can only breed despair and lead to a lack of confidence in class and mass actions that are the necessity of our times today. We must therefore organize ourselves to lead these struggles to success and there is every reason to expect that the people of our country will respond to these in larger numbers than ever before.