Rising Prices, Fearful People in India

For quite some months, the prices of goods and services, especially of mass consumption, have been increasing relentlessly. On July 3, the prices of petroleum products were increased by 25 to 30 per cent. This has added fuel to the fire and aggravated the price situation. Not only the freights and passenger fares have gone up, but also the costs of production have increased in almost all sectors of the economy. The increasing expenses of operating tractors, threshers, tube wells, etc. are bound to add to costs of production in agriculture. From food grains, pulses, edible oils and raw materials to fruits and vegetables have become costlier. According to one estimate, soon after the government announced the hike in the prices of petroleum products, a number of goods and services became expensive by 50 to 100 per cent. Since the wages and salaries have not gone up, there has been an adverse impact on the family budget of the working people. They have to prune their expenses on some items to meet the increased costs of basic goods and services.

In view of this, the argument of P. Chidambaram, the finance minister, that what we are witnessing in India is demand-push inflation is patently bogus. He thinks, rise in the rate of economic growth has raised the disposable income, which, in turn, has generated more demand for goods and services, leading to increase in their prices. In fact, either he forgets or tries to gloss over the fact that the increasing rate of economic growth has benefited mostly the upper segments of the society. Still 25 to 30 per cent of the population is below the poverty line, i.e., it survives at less than $1 per day. If we look at the proportion of the population subsisting on $2 per day, that will be really frightening. In fact, the rising prices have made the distribution of national income more skewed. At secondary level of distribution, the working people are robbed of their hard earned income because now they are forced to pay more for the goods and services they consume. Economic history testifies to the fact that ever since the advent of industrial capitalism, the overall long-term trend of prices has been upward. In other words, in short term prices may fluctuate as a result of seasonal, business cycle and random factors, but in the long-term it has been showing an upward trend. It amounts to cheating the working people of, at least, a substantial part of their earnings after they receive their earnings and go to marketplace.

John Maynard Keynes underlined in his magnum opus that capitalists must not resist with any tenacity the demand of labour for higher money-wages, but should take away a part, if not the entire increase in wages by raising the prices of goods bought by them. To quote from The General Theory of Employment, Interest and Money, “Whilst workers will usually resist a reduction of money-wages, it is not their practice to withdraw their labour whenever there is a rise in the price of wage-goods.” He went on to add, after a few pages, “… it would be impracticable to resist every reduction of real wages, due to a change in the purchasing-power of money which affects all workers alike; and in fact reductions of real wages arising in this way are not, as a rule, resisted unless they proceed to an extreme degree.” It is needless to add that clever capitalists have been acceding to the demands of working people and creating some sort of money illusion in their mind, but when they return to the marketplace their pockets are picked in most non-violent way by increasing the prices of goods and services they have to buy. Sometimes better packaging or minor changes create the impression that they are buying better varieties of products. Thus they are deceived.

Returning to the Indian situation, one finds the policies of the government, to a large extent, responsible for fast rising prices. Heavily influenced by the Washington consensus, the state has been washing its hand of effectively intervening in the market, especially of food grains and other agricultural products to secure better prices for farmers, keeping buffer stocks to feed the public distribution system and bring down the prices by releasing them so that hoarders and other manipulators are kept under check. This thinking since the days of Nehru and Indira Gandhi came under attack during the BJP-led NDA government when the public distribution system was curtailed in its scope. This line has not been reversed even after the UPA-led by the Congress has come to power. Take, for example, wheat. Only the other day Sharad Pawar, the agriculture minister, admitted in Parliament that, as against the target of 16 million tones, the government has been able to procure only 9.02 million tones. This shortfall has been due to government’s decision to permit multinational corporations to enter the market and buy wheat from farmers. Since they have been able to offer higher prices than the government agency—Food Corporation of India and corner more wheat. Their game is obvious. During the lean season they will bring their stocks in the market and sell at higher prices. The buyers who will be mostly working people will be made to cough up whatever prices these companies demand. The government with insufficient stocks will not be in a position to intervene in the open market after meeting the needs of whatever remains of the public distribution system. The government has already allowed import of wheat from Australia and America. Imported wheat will cost more than what the government could have paid to farmers if it had procured from them. To encourage indigenous as well as foreign companies including the American ones to import wheat the import duty has been reduced by 5 per cent.

In India, the pulses are the major source of protein for most of the population that cannot afford eggs, milk, meat, etc. For quite some time the area under pulses has been declining and the government has not done anything to arrest this trend. In recent times their prices have gone up by 100 per cent. Lately, under the popular pressure the government has permitted the import of pulses and the import duty has been reduced to zero. It has also arranged for the sale of some varieties of pulses at fixed prices from designated government outlets.

Sugar is another essential item whose price has risen by more than 50 per cent in the retail market. This is because of the export of sugar. Now the government is discouraging export so that the supply in the home market gets augmented.

Vegetable prices have also been skyrocketing. Some weeks ago tomato was selling for more than Rs 40 per kilogram though usually it sells for Rs 10-15 per kilogram. Onions, potatoes and other seasonal vegetables have gone beyond the reach of common people. Recently, there has been some decline in prices of vegetables after the intervention by the government.

The government, heavily influenced by the underlying philosophy of the Washington consensus, has allowed forward and futures trading in food grains. Thus the government has permitted food grains to be a subject of speculation. As is known, price stability and speculation cannot go hand in hand. Economic history testifies that the British government banned futures trade in essential items during the Second World War under the Defence of India Rules because it could have destabilized the price situation.

While the people who are sitting in power may not realize the dangers of rising prices, Sonia Gandhi knows fully well that common people have votes which they may use to pull down the government as they did two years ago when the government of the day was intoxicated with “India shining”. That is why she has talked to the chief ministers of the Congress-ruled States to impress upon the need to take urgent steps. The Left parties that are supporting the government have tried to pressurize the government to do its utmost to check the rise in prices. The other day members of Parliament were seen agitated when the government appeared to them non-serious about the dangers emanating from rising prices. It is hoped, the people sitting in the government will listen to the voice of reason.

       Girish Mishra,
       E-mail: gmishra@girishmishra.com 

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