THE rising prices and studied silence on agricultural reforms and growth signifies UPA II. The report card does not even acknowledge that prices are rising, poverty is increasing and there is any need to have a fresh look at agriculture and food production.
Prices are rising every week and marginally vary in points. This week it rose to 16.55 – a jump of 0.32 per cent over the previous week. The rise was driven by items of primary use – pulses, fruits, milk, potatoes, sea fish. This is not to say that prices of other food items including rice and wheat have shown any declining trend.
The government’s silence on prices is rather intriguing. The report card does not suggest any action plan to contain it. It seems as if inflation is not an issue at all though RBI and even international agencies are extremely worried over the situation.
In a way the projection of figures is lopsided. It creates a view that prices have risen at a particular level. That is the greatest myth. Prices or inflation is presented week to week comparing it with the corresponding week a year back. It does not take into account the continuous rise of prices of commodities. The government has been able to create an illusion that prices are rising around 16 per cent and thus it is “in control of the situation”.
The figures suggest the contrary. The food price rise is hovering around 20 per cent on an average. If prices of some commodities that are continuously rising are taken into account, it would be found that many items have become dearer by over 30 per cent in a year and some like butter have become doubly expensive i.e. 100 per cent increase.
Pulses have become 30.84 per cent expensive, fruits 13.74 per cent and milk 21.12 per cent. Butter prices per 100 gram that was available for Rs 12 a year ago is now being sold at Rs 25. Edible oils have also become equally dearer. The price index does not mirror the whole situation. It is only indicative.
The rise in prices is no more restricted to food items. There is spurt in prices of rubber, raw silk, jute and oils for industrial use and other non-food items. Within a week these have risen as per the index by 0.4 per cent and are continuously on the rise.
The RBI had expressed concern that food inflation would spill over while releasing the monetary policy. Now international agency Goldman Sachs has found the situation equally grim and predicts a continuance of the inflationary situation through the year.
The Goldman Sachs’ views are contrary to what Prime Minister Manmohan Singh has said recently that prices would come down. If RBI and Goldman Sachs are to be believed the situation might go out of control as the food inflation spills over to manufactured and other items.
The government has not realised that food prices decide the wages. Higher food price would force the industry to hike wages. Consequently its products would become expensive. That is likely to have impact on consumption. If that happens what is being apprehended may turn into reality.
The apprehension is that high inflation though have increased profits of selected people and traders, ultimately it might lead to a repetition of the European situation. Like Europe, India, despite a supposed high-growth economy, might slip into recession. If it becomes deeper despite realisation of money from 3G spectrum sales and some from disinvestment, the government might get into a debt crisis.
Even now the government is finding difficulty in pursuing its flagship social inclusion programmes. The MNREGA, Bharat Nirman and rural development schemes are facing many road blocks. If prices are not contained many of these may only turn out to be mere slogans and propaganda exercises.
The recent studies have come out with grim realities. Growth and employment in Delhi is being driven by the construction industry, in the wake of the Commonwealth Games. Other activities have slowed down. It has also come out that many small retailers, sweetmeat sellers have closed down their shops being unable to meet the high cost of inputs as well as fall in sales.
Though government is keen on projecting the growth at 8.4 per cent, its chief statistician Pronab Sen says it is difficult to achieve that as many uncertainties persist. “Investments have gone fast but we have question mark about sustainability. Credit is growing but not in a way that would support an 8.5 per cent GDP acceleration,” he says.
This has left the market totally unregulated. It is even alleged that some top functionaries in the government have been helping those who have been playing with the availability of food, milk and vegetables. The unregulated market is supposed to be the main culprit for the present inflationary situation.
The government needs to have a holistic look at agriculture production, land usage and prevention of use of farm land for any other purpose. Almost over 40,000 hectare farm land has been lost to urbanisation and construction industry sharks. More are likely to be lost in the coming years. The price situation, if remedial actions are not taken, is likely to worsen.
The projected growth trajectory cannot be sustained on promises. High inflation is leading the bankers to mull over increasing interest rates. That again is likely to have impact on the prices and growth prospects.
The government needs to have cogent thinking on the situation. Presently, it is engaged in day-to-day fire-fighting to maintain its image. It must stop doing that and present to the country a policy not merely for growth but also a strategy for stable price regime, if wants to really take the country to the promised trajectory.