It is not easy to manage a bad economy that a government inherits. The NDA government is afflicted by this heritage. The economy was infested with severe problems, siphoning of funds, scams, high bank NPAs, monopolized markets and high prices.
Some of these like the untimely price hikes of food grains, pulses, and commodities put severe strains. The recent CPI-based inflation climbed by 5.7 percent on the back of rising food grain, pulses and vegetable prices. The WPI also showed a nominal increase.
The government took the actions that include excise duty hike on sugar and creation of buffer stock for pulses. The 20 percent duty hike on sugar exports, increased availability and had a sobering effect on the prices.
It also initiated the measures to control the prices of pulses and other commodities. Prime Minister Narendra Modi has expressed concern over the situation and asked to monitor the situation on a weekly basis. His call to taxmen for building “bridge of trust” is also extremely timely. The prime minister should also look at how personal income tax keeps reduces with inflation.
Finance Minister Arun Jaitley announced to utilise the price stabilization fund to check the prices. It utilized Rs 630 crore for the creation of buffer stock for pulses and onion. It is importing pulses from many countries including Myanmar and Panama. The government is also keeping an eye on warehouses so that the private importers are not able to make use of the shortages in the market.
The government is supposed to act in difficult situations. The noises are appropriate. But the steps need deeper look. Importing staple dietary needs like pulses may be a short-term approach.
For a long-term solution a new look economic steps are needed. The pulse production has been falling for over 25 years. Piecemeal steps to increase it have not worked. Food minister Ram Vilas Paswan says that domestic demand veers around 24.6 million tons against production of 17 million tons. The recent drought has increased the availability gap by 7.6 million tons. The centre built a buffer stock of 15 miilion tons.
These show the intent of the government. However, the pricing formula, buying at Rs 66 a kg and allowing the states to sell at Rs 120 a kg is a bit puzzling. If the government itself allows so much of margin for one commodity, it is likely to set not a proper example for other businesses. Nobody doubts the intention but government has to have actions that are businesslike. Such huge margins raise many questions, including effectivity of the proposed steps.
The government itself is not supposed to be in the business of onion or pulses. The citizenry, however, expects it to create an atmosphere of checks and balances in the market. The recent moves are indications of the seriousness. But if the government makes the right moves, it may create situations similar that NDA-I under Atal Behari Vajpayee had done. The prices were one of the lowest and still the nation remembers him for that.
The Modi government has initiated moves, if taken forward properly, it can have similar sanguine effects.
During these few years, due to various steps or inertia of the intermediate governments – UPA-I and II – lots of convolution has taken place in the market. There is monopolization of some big groups. Their profits during the 2004-2014 bounced several fold.
Some of them have earned annual profits of 80 to 142 percent and on an overage some others profits were between 20 to 40 percent – abnormally high by any standard. It indicates that they severely increased prices of various goods, cosmetics and commodities manifold. They also boosted prices by forcing people to buy in bulk.
Should the government be held responsible for such malpractices? No, it should not be. All the same, no government can absolve itself of any irrational and unethical practices in the market or society.
The present government has to look at these aspects as well. The large groups should be prevented from having a way of their own. In the new marketing and investment scenario, these are some of the critical areas requiring deft handling. The AT&T had become too powerful about two decades back. The US used its anti-trust laws to clip its wings. That was too drastic. However, for the functioning of any democracy, government must arm itself. No one should be in a position to defy the government.
Such steps and institutions of regulators are a necessity so that the government can free itself of looking into trivialities. This government has the capability to create mechanisms so that nobody can trade on the miseries of the people be it shortage of commodities, delayed deliveries or none at all as in the housing sector, hiking prices by car manufacturers of the same product/engine branding with euphoric names.
Food prices are not the only items that need government’s attention. India is aiming to become a large producer with Make in India and many other programmes.
Price stability is sine qua non. Normally market does it on its own. But the political conditions and executive moves ensure that no volatility take place. Healthy conditions and also of appropriate competition and not cartelisation have to be created. It is also essential for quality and right prices. Manufacturing has to learn to thrive with affordable prices and good practices. If it is sliding, the fault is not only of the economy but also the practices of many producers.
A key to maintain prices and wages is adequate farm production. During 2004-2014, it either stagnated or dwindled. India remains a farm-based economy. Poor farm conditions hit all. The Modi government has started giving it a fresh look. It shows positive growth. If this is maintained and farms become profitable, it would have sanguine effect on prices and market.
The government should be seen the least but must be alert. It has to ensure benign interventions. Easier the life people have, more comfortable it would be for the government. The nation has many hopes. It expects the economy to be back on rails.