Shafey Danish
The other day I went to the market to buy vegetables. I took a 100 rupee note believing that it would be more than sufficient for the small purchases I intended to make.
Once I was at the vegetable vendor’s however, the money seemed to melt away. The price, for somebody who had not gone to the vegetable seller for months, was a shock.
It is no longer possible to buy vegetables by the kilo, but by the pau (250 gms). Prices range from 8 per pau to 15 per pau, which work out to Rs 32 to Rs 60 per kg. Till a few years back such prices would have been unimaginable. In fact, high vegetable prices, specifically that of onion, brought down the Vajpayee government.
Inflation
Yet, today, prices of all vegetables are just as high and people seem to have accepted this as another bitter fact of life.
High prices are not limited to food. Rickshaw pullers wouldn’t go anywhere for less than 10 rupees. A small plate of chaat could cost you 10, 25, 50- anything depending on where you are getting the chaat from. Clothes, even after discounts of 70-80%, come at upwards of Rs 400, there is of course no upper limit.
Prices have run amok, and for the common consumer there is no place to hide.
The doubling and tripling of prices, at one level, represents an improvement in quality as well. The clothes are better, the food quality has gone up, better and more scientifically designed furniture is available, and so on.
Flawed reforms
At another level, the increase in prices reflects the growth in population and, specifically, the growth in that segment of the population that consumes. That is, there are more people who can buy more and want to buy more. There is more money chasing goods.
But at another level, it reflects the imbalances in the ‘liberal’ economic system. One of the reasons for high prices of say, drugs, is the patents system- a necessary part of a liberal economy. At the time when the patents law was about to be enforced by the Indian government, drugs prices in Pakistan, where the patents law was already enforced, were 8 times the drug prices in India. Now, in India too drug prices are high.
When future trading in food stocks was introduced, their price jumped up to current high levels and may go up further.
The government would have tackled this, on a war footing, if it had thought this was a problem. In fact it does not. The present economic theory holds that having an inflation rate of 2 - 4% is good for the economy. As prices rise, companies are able to earn more and pay more; so salaries also rise, offsetting the effect of price rise. Where is the problem?
Well, the problem lies in two crucial facts. Salaries do not rise in tandem with the rise in a company’s profits. And not every one gets a salary.
Aam aadmi
There is a huge sector in small scale business - the corner store, the panwallah, the dhaba, the small restaurant, the hole-in-the-wall clothes store etc. whose income does not necessarily rise with inflation, who in fact are getting crowded out with big businesses entering retail.
Then there is that large population which lives on less than Rs 100 a day. Price rise is essentially placing almost all things outside the reach of this section.
This is not just detrimental to a large section of the population but to the country as a whole. All these people, if only they had enough money, could have provided a ready market for the goods manufactured by our companies. This would have freed us from too much of a dependence on exports for our economic growth.
Comparisons with Western nations, which take inflation for granted, do not really make sense as in those countries most of the population is in the planned sector.
Banking and market reforms
Then there is the case of banking and financial sector ‘reforms.’ The government wants to, in effect, open up the market the way it is in the West. It feels such a thing would be good for the economy- a financial tsunami now and then notwithstanding.
So it is determined that it will break down those barriers which had kept the global maelstrom at bay. It wants to remove the regulations. It wants to introduce derivatives trading. The same derivatives that nuked the markets just a year ago.
The government apparently is not happy that we did not share the fate of great Western nations, and wants to make sure that the next time such a financial crisis happens, we are right there in the middle of it making news with our own drastic measures against the crisis, and with our own huge bailout to spend.
Our cities have chosen to build high rise high class buildings even as people in neighbouring slums struggle for basic amenities, and build flyovers and malls even as roads remain potholed and drainage systems inadequate to cope with erratic monsoons.
Agriculture
While on erratic monsoons, let me present some numbers on Indian agriculture system, so dependent on the monsoons. The sector accounts for around 17% of the total economy, but employs nearly 60% of the population. India ranks second in farm products, agriculture, forestry and allied sectors. The government gives nearly 80,000 crore rupees every year in farm subsidies to fertilizer companies. It will spend an additional 12,000 crore on the sector this year.
Suffice it to say that the agricultural sector plays a central role in Indian economy.
Yet the sector has been plagued by the cut and paste methods of addressing problems.
When the government realized that the number of farm suicides were rising overmuch, and it may have political costs, it decided to give a Rs 60,000 crore bailout (later increased). The government is yet to take any concrete step to raise production per hectare, which is a mere 30-50% of the global high.
No system of canals and wells has been built as a fallback if the monsoon fails, which it threatens to do every year. There is no soil regeneration program, (or if there is, the government looks determined not to reveal it).
SEZ
The SEZ policy, initiated to kick start economic growth, has turned into a corporate gravy train. Corporates not only receive help from the government in setting up operations in SEZ designated areas – which includes making available precious natural resources like water cheaply and giving land at a highly subsidized price– but also get a tax holiday extending to decades.
No wonder corporates rush to states which have these special economic zones. This has led to a competition between states in forming SEZs and thus getting industries to invest.
Economics for new India
There are a host of other issues waiting to be addressed: Strengthening the labour movement so that they get bargaining power with corporations, while at the same time ending the culture of hartals. Ensuring India’s growth model does not make it an anomaly in the 21st century by being a laggard on climate change front. Developing India’s internal market so that we lessen our reliance on exports for economic development, ensuring rapid growth in India’s GDP translates into food security, health care, and universal education. These and many more challenges are faced by India today.
What path a country takes for economic development depends not just on the ideological context in which it came into existence but the degree of flexibility the country is willing to grant itself within that context.
Though India has made a radical change in terms of economic ideology– from a left of centre to a right of centre approach– the degree of flexibility remains severely limited.
India did not change its economic policy until it was forced to do so from the fear of defaulting on its loans. Once that change came in, however, India was equally adamant to follow through with the same kind of market reforms that have driven many Western nations to near bankruptcy.
One cannot but see a certain economic blindness in all this. India urgently needs to take long term measures to reduce poverty quickly. To end deaths due to hunger, lack of shelter and lack of medical care. Such occurrences are a blot on the profile of a nation that harbours dreams of being a global power, and are ultimately a drag on the country’s economic development.
