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Economics lecture, 3008

The government started special bonds as compensation to producers. The economy was soon flooded with oil bonds, fertiliser bonds, egg bonds, coconut bonds and so on, writes Manas Chakravarty.

india Updated: May 31, 2008 23:42 IST

It all started with oil. Legend has it that one day, a day lost in the mists of time, crude oil prices started to rise uncontrollably, sending the government into a tizzy. They called in the economists, who, as usual, forecast gloom and doom for the economy. The government babus and netas listened with heavy hearts until one young bright spark suddenly piped up, “Why do it?”

In the hush that followed, he stammered, “I mean, what if we don’t raise the price of oil?” The economists’ lips curled in disdain, but they were brushed aside by the party chief, who asked the youngster to explain what he meant. “It’s simple, really,” said the young man. “We just tell the oil companies to roll back their prices.” As the revelation sank slowly in, the assembled politicians let out a whoop of delight. “Thanks to you, young man, we’re sure to win the election,” gushed the party chief, warmly hugging the boy. And thus was born the science of election economics.

Within a few months, the cardinal principle of election economics, of controlling inflation by the simple expedient of telling people not to raise prices, was tried time and again. Sugar, steel, food and cement producers were all told to lower prices or else they would be locked up. The powers that be soon became addicted to price controls. Vegetable prices started to rise and the administration immediately issued a decree freezing vegetable prices. That worked so well that the government, with an eye on the brinjal-sellers’ vote bank, decontrolled the price of brinjals.

That was when things started to go awry.

The ball was set rolling by the egg eaters, who said the establishment was favouring non-egg-eating vegetarians. The government acted quickly, forcing price cuts in eggs. But egg sellers protested, arguing that bigger eggs should fetch a larger price than smaller ones. The government responded by fixing one price for eggs with a circumference of less than three inches and another for the larger ones.

That opened the floodgates. Steel makers descended in droves to the finance ministry, each arguing that his make of steel deserved higher prices. And they all wanted ceilings on the prices of inputs, such as iron ore and coal and power. The government then brought out a handbook listing all the grades of steel, cement, edible oil, sugar, wheat, rice, cars, scooters and a host of other commodities, with their retail and wholesale prices.

Meanwhile farmers stopped growing vegetables, as prices were not remunerative. Housewives started hoarding vegetables and hoarders and blackmarketeers sprang up like toads in the monsoons. And since fruit prices were decontrolled, a huge legal battle raged all the way to the Supreme Court on whether coconuts were fruits or nuts or vegetables. The matter was settled with the Hon’ble court ruling that it was half a vegetable, and consequently one-half of its price could be regulated.

But the government soon realised that rather than produce at a loss, producers were shutting shop and vanishing without a trace. So they started giving out special bonds as compensation to producers. The economy was soon flooded with oil bonds, fertiliser bonds, egg bonds, coconut bonds and so on. Reports abound in the history of the time about those producers who had vanished, becoming vagabonds, but we have been unable to gather what kind of bonds they were. Also, the government soon laid down production quotas for every commodity, to be fulfilled on pain of death. Anti-social vegetable farmers refusing to grow vegetables were summarily shot.

It was at this point that a hand went up in class. “When and where did this happen, sir?” asked one of my smart young economics students.

“In a country called India a thousand years ago, around the beginning of the twenty first century,” I said. “Unfortunately, for some strange reason, the country became a complete wasteland, descending into utter chaos immediately after the publication of a new, 36-volume Price and Production Control Handbook. I believe it was written by a guy called C. Dambaram.”

Manas Chakravarty is Consulting Editor, Mint

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