Pro-reform pundits are already upon us in this budget season with their ‘wish list’. India Inc had heavily invested in creating their ‘messiah’ during the general elections. It is now time for this messiah to ‘deliver’.
One common refrain is that the economy has been ruined by six decades of Congress rule and now is the time for change. Strange, many of the current Cabinet ministers like the ministers of finance, defence and external affairs were Cabinet ministers earlier as well. This can be explained only by leading the people to believe that they have moved from the Congress to the BJP today! It is time to remind these pundits that the earlier BJP-led NDA Vajpayee government’s electoral slogans of ‘India shining’ and ‘feel good’ factor were rejected by the people, keeping them away from government for a decade.
The moot argument of the pundits is that this Modi government must undertake reforms that will lead to greater availability of resources at cheaper rates of interest to the corporates. This will stimulate larger investments, leading to higher growth and employment generation. If this is done, lo and behold, India will become the El Dorado — land of flowing milk and honey. Such resources can be found by drastically cutting the UPA’s vote-bank policies of ‘populism’, ie, reduce, if not eliminate, subsidies for the poor, restrict and cut back on expenditures on food security and other entitlements for the poor. The Food Security Act came into force on July 5, 2013. The state governments were to implement the law by July 4, 2014. The Modi government has already decided to extend this deadline by three months.
In yet another absurdity, these pundits have claimed that within one month of the Modi government, prices have fallen. ‘Potatoes selling at Rs. 100 a kilo under the UPA government are now selling at Rs. 30.’ Every household is, thus, saving `70/kg on potatoes alone! Hence why further subsidies? They seem to be living in some other Indian Wonderland. The official data indicates that the inflation rate has suddenly shown an upward swing. The wholesale price index rose from 5.2% in April to 6.01% in May 2014. Consumer price index growth would naturally be a multiple of this price rise. Worse, this surge in the inflation rate is based on the rise in food prices and essential commodities. The food inflation rate rose to 9.5% in May against 8.64% in April. Potato inflation was highest at 31.4% followed by fruits at 19.4% and eggs, meat and fish at 12.47%. Manufactured products went up by 3.55%.
Under these conditions, the prescription for drastically cutting subsidies only means that there is going to be a severe squeeze on the quantum of purchasing power that is available in the hands of the vast majority of our people. Now, no corporate would invest more when the people simply do not have the money to buy the products produced by such investment. This will neither generate profits nor lead to higher growth or employment. Thus, making available a larger quantum of resources at cheaper costs to the corporates can only mean making resources available for speculation and not production. This is what explains the current stock market boom when the economy is stagnating and manufacturing output declining. The fact that the capital goods sectors’ output declined in 2013-14 compared to the previous year suggests corporate investment that should have got a boost from the stock market boom has actually declined.
On the other hand, the surge in the prices of gold, real estate and savings in foreign currency, leading to a decline in the value of the rupee, clearly show that profits are being maximised through speculative activity rather than production. Hence, the prescription for making resources available at cheaper costs will only lead to profit maximisation through speculation and not to higher growth and employment. In the bargain, the miseries of the vast majority of the people are bound to exponentially increase.
Completely ignoring this reality, these pundits are renewing the demand for the elimination of subsidies on petroleum products. This, we are told, is necessary to improve the health of the economy as the oil companies are losing thousands of crores of rupees of ‘under recoveries’. These under-recoveries are not actual losses, they are the difference between the international price of a petroleum product and its domestic price. If India were to eliminate all subsidies and price these petroleum products at international levels, then these under-recoveries can be wiped out. Now, India essentially imports crude oil, which is refined to produce different products like petrol, diesel, kerosene and LPG. Any loss or gain, therefore, must be calculated on the basis of the cost of production domestically (including the cost of imported crude). The fact that the annual balance sheets of all major oil companies show handsome profits means that there is simply no loss. Therefore, the alarming cries of staggering ‘under-recoveries’ are a ruse to make petroleum products unaffordable to the vast mass of the people while permitting India Inc to reap super profits. This is a gigantic fraud. By endorsing such a fraud, the Modi government will only perpetuate mounting people’s agonies.
This budget season, therefore, is not of mere routine concern. The Modi government appears to send signals that it shall implement the UPA policy trajectory of widening the divide between the two Indias more aggressively.
The Prime Minister has agonised in a blog (typical one-way communication) that he did not have the luxury of a 100-day honeymoon period which other new governments enjoyed. Is it a wonder?
Sitaram Yechury is CPI(M) Politburo member and Rajya Sabha MP
The views expressed by the author are personal