The UPA has started backtracking from the grandiose electoral promises that its leading constituent, the Congress party, made in its Lok Sabha manifesto.
A meeting of the full Planning Commission held on September 1, 2009 under the chairmanship of Prime Minister Dr Manmohan Singh prepared the preliminary shift in UPA strategy: From promised long jump economic growth to inflation pole-vaulting with reduced growth target.
It has also taken a U-turn on food availability. After repeatedly claiming that the country had enough food stock to feed everyone for 13 months, the Government is now doing loud thinking on food imports.
The Planning Commission has also hinted at increase in prices of all forms of energy including petrol and diesel in the coming months.
According to market analysts, the Government’s loud talk has alerted market speculators both at home and abroad to hoard food stocks and jack up prices.
They say that the Government has blundered by repeatedly airing its intention to import food to tide over drought-induced rise in food prices. It should have kept the proposal under wraps and snapped up import deals before the global prices harden further. The UPA is perhaps itching for repeat of 2007 wheat import scam marked by rise in import prices with each successive tender notice.
Before coming to specific issues and cold statistics, recall Congress Party’s Lok Sabha manifesto. It had sought fresh mandate on the basis of its “core values” that included “economic growth for all, especially for the aam aadmi.” It affirmed: “We will maintain the path of high growth with fiscal prudence and low inflation.”
The 11th Five Year Plan is in the middle of its second year. The mid-term appraisal of the Plan is still months away. And yet the Planning Commission has shown the audacity to scale down annual economic growth target to about 7.8 per cent from 9 per cent under the most optimistic scenario. This implies lesser income and few job opportunities for aam aadami.
The agenda notes for the meeting of the full Planning Commission said: “The fact that the 11th Plan growth target of 9 per cent cannot be met should not come as a surprise given the loss of momentum due to the global slowdown. In fact, an average growth rate of around 7.8 per cent should be considered a remarkable achievement.”
It has admitted that the Central Government would not have sufficient funds for its own annual plans in the next two years. This is because economic growth is expected to be lower than projected in the 11th plan document and resources will therefore also be lower.
The scarcity of funds is forcing the UPA Government to rely on private sector for sustaining growth momentum. Its growth mantra is a big push to Public Private Partnership (PPP) under which the Government thinly spreads public money as grants, loans or as equity in projects controlled by the private sector.
Experience shows that PPP projects encourage crony capitalism and enable private operators to fleece consumers through higher user charges that are often increased.
Even the pruned growth target of 7.8 per cent can go for a six, if the monsoon turns out to be deficient in the next fiscal year, i.e. 2010-11. The phenomenon of droughts in two successive years happened thrice in recent decades-once each in the eighties, seventies and sixties.
With dismal writing on the wall, the Planning Commission is now talking of “appropriate defensive measures” on the food front.
It said: “If these (food) stocks are substantially depleted, as they should be to manage the current drought, we will enter the next year in a weaker situation. There is a case for using food stocks judiciously in the current year and also resorting to imports well in advance if necessary to build up stocks as a precautionary measure.”
The Government’s intention to import foodgrain and other farm commodities was first revealed by Finance Minister Pranab Mukherjee on August 21.
“We shall go for imports for any commodity that will be in short supply, to maintain demand-supply mechanism”, Pranab reportedly said at the conference of State agriculture ministers.
Such loud thinking on sensitive issue of food security is bound to prod speculators to take positions on the global food markets. As it is the markets are hyper-sensitive about emerging Indian crop prospects.
To quote a special report dated August 24 from futures-research.com, “This is arguably the most bullish fundamental in soybeans and vegetable oil in the world at present. India is already seeing double-digit food inflation, and it faces an extended drought in some areas after the disappointing rainy season ends. The government will be very anxious to use imports to stem inflation if it persists, and this could have an effect on both soybean oil and palm oil. With stocks of palm oil in nearby Malaysia already at reduced levels, soybean oil may be the market for bulls to watch.”
The Planning Commission has admitted that prices of both primary and manufactured foods have remained close to double-digit for last several months. These prices, however, been overshadowed by the declining prices of non-food items in the Wholesale Price Index (WPI), which has remained negative since June. It says that WPI would turn positive in coming months. The current fiscal 2009-10 would thus end with inflation rate of 4-5 per cent.
It says: “The situation could become worse if agricultural outcomes turn out be worse than projected in the base case. Management of inflation expectations in the course of the year will post important challenges. Food prices especially, could be under pressure if the demand supply situation is not managed effectively.”
Management or no management, the food prices are already galloping. The prices of milk and milk products, vegetables, fruits, pulses, edible oils, etc have risen lately.
As it is, the consumer price index for industrial workers increased by 9.3 per cent in June 2009 over the corresponding month of previous year.
This is, however, not restraining the Planning Commission to go slow on its energy reforms agenda.
In its progress report on the implementation of Integrated Energy Policy (IEP) that was approved by the Cabinet in December 2008, the Planning Commission said: “Petrol and diesel prices closer to world prices but still not automatically linked. Appointment of a Task Force (is) under process.”
It has pointed out that the prices of Liquid Petroleum Gas (LPG) and kerosene are “greatly misaligned and imply a very large subsidy. This is leading to huge uneconomic use and unintended benefits to certain classes of consumers and widespread adulteration of petrol and diesel.”
As regards coal, the progress report disclosed that an official committee is looking into the issue of fixing up coal prices on trade parity pricing. “Its recommendations are awaited,” it added.
UPA’s message to aam aadmi is thus clear: Get ready to pay more for essential commodities and services, drought or no drought.