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Poverty of policy

The deregulation of fuel prices will push up the cost of living. This will devastate the majority of our people. The UPA must radically change its economic policies, writes Sitaram Yechury.

india Updated: Jul 12, 2010 22:03 IST
Sitaram Yechury
Sitaram Yechury
Hindustan Times

Considerable euphoria is once again being generated over the latest prediction by the International Monetary Fund (IMF) projecting India’s growth rate to be 9.4 per cent during the calendar year 2010. The infamous ‘feel good’ factor that spelt the rout of the BJP-led NDA in the 2004 general elections is surfacing now to haunt the UPA 2 government. The question is not about the quantum of the rate of growth — the plight of the people can be assessed just by seeing the fine print of how the benefits of such growth have been distributed. It’s true that during the course of this year, the number of USD billionaires in India doubled to 52, holding combined assets equivalent to 25 per cent of our GDP. On the other hand, the United Nations Development Programme (UNDP) update for 2009 shows that 320 million Indians, more than the combined population of the US and Australia, live under extreme poverty. The World Bank’s global economic prospects show that 827.7 million, or 75.6 per cent of our population, live on less than $2 a day. This is equivalent to 32 per cent of the world’s population.

India ranks 134 out of 182 countries on the Human Development Index, lower than all other BRIC countries. Its record in attaining the United Nation’s Millennium Development Goals (MDG) is equally discouraging. The MDG target of reducing the poverty rate in India to 16 per cent, according to international definitions, by 2015 appears virtually impossible. By our own standards, which are far lower than international definitions, the Suresh Tendulkar Committee has estimated that 37 per cent of the total population lives the below poverty line.

The MDG targeted to reduce infant mortality to 40 per 1,000. Today, we stand at 68 infant deaths per thousand while the mortality rate for children below 5 years is 93 per 1,000 births. Agencies like the Unicef and FAO report that 43 per cent of Indian children are underweight and 230.5 million children remain undernourished. Likewise, in all other MDG targets, like providing safe drinking water, sanitation, health and education, India lags far behind.

While this state of affairs must cause both concern and agony, what’s worse is that the recent hike in the prices of petroleum products will push more people below the poverty line. Already the National Sample Survey Organisation (NSSO) reports that nearly four crores more people were pushed below the poverty line due to an increase in the costs of health care alone. The recent price hike comes on top of the relentless rise in the prices of all essential commodities. The overall rate of inflation is already more than double of what the Reserve Bank of India had anticipated at 5.5 per cent for this time of the year.

While the government talks of subsidies on petroleum products, it seeks to conceal the fact that taxes on petroleum products constitute the biggest chunk of revenue for the government. In 2010-11, the contribution of these taxes is expected to be to the tune of a whopping Rs 1,20,000 crores.

India needs to import crude oil since our domestic production is insufficient to sustain our economy. This is akin to importing foodgrains during a famine to feed our people. Surely, the government can’t tax such foodgrains imports, essential for the life of our people. Likewise, it can’t impose massive taxes and duties on oil imports. Worse, having imposed such high taxes, the government now turns to claim that it is subsidising petroleum products.

In an attempt to justify this hike, the prime minister, while attending the G-20 Summit in Canada last month, said, “The adjustment (sic) that has been made in the prices of kerosene and LPG was also necessary, considering the very high subsidy that is implicit in their pricing structure.” In the interest of the aam aadmi, the prime minister should have made ‘adjustment’ in the tax structure rather than hike prices that will devastate the majority of our people.

Strangely, India follows a policy of pricing petroleum products on the basis of international prices rather than the actual costs of production. We import nearly 80 per cent of our crude oil requirement. It is then processed in our refineries to produce products like petrol, diesel, kerosene etc. India is more than self-sufficient in oil refining and, in fact, exported 28 million tonnes of petroleum products last year. Naturally, the cost of refining in India is much lower than that in developed countries. Yet, in order to fatten the profits of oil companies, we have to pay at par with global prices irrespective of the actual production and refining costs.

Further, the total deregulation of prices of petroleum products will ensure their entry into commodity exchanges and make them subject to speculative forward/futures trading. Such speculation is already playing havoc with the relentless rise in the prices of all essential commodities.

If the prime minister is true to his rhetoric of ‘inclusive growth’ and the UPA is concerned about the aam aadmi, then the present course of economic policies must be radically changed. Rather than giving tax concessions to the tune of Rs 1,20,000 crores to corporates and high-end income tax payers, as revealed in this year’s budget papers, this revenue should have been collected to increase public investment. It would have ensured massive employment generation, helped in building infrastructure and moving towards achieving the MDGs. Concessions to the rich are termed as ‘incentives’ spurring growth. Concessions to the poor are treated as ‘subsidies’ that inhibit growth. Unless this is reversed, the aam aadmi is doomed.

Sitaram Yechury is CPI(M) Politburo member and Rajya Sabha MP. The views expressed by the author are personal

First Published: Jul 12, 2010 22:00 IST