People's Democracy

Taming Inflation – Revisiting 1998

Dipankar Mukherjee

NINETY-ONE months may be too long a period for an individual to recapitulate, but obviously not for the nation, threatened with runaway price rise and inflation. Participating in the debate on “Rising price of essential commodities” in the Lok Sabha on December 3, 1998, the then MP from Sivaganga (now the finance minister), had this to say to the Vajpayee government: 

“…I would request them (government) not to think that this problem can be solved by importing onions or banning the export of potatoes and transport of tomatoes. They are simply manifestation of a deeper problem. The deeper problem is fiscal management, monetary management and proper tax policies.”

You will find the above very relevant today, if not prophetic, if you substitute “onion” with wheat, and sugar and “potato” with pulses and tomato. 

FISCAL MANAGEMENT AND PROPER TAX POLICIES

Under what economic logic is the additional revenue mobilisation based on ad valorem tax and duty charges on petroleum products justified? Persistent refusal to reduce this and to make it specific is being justified by the present government on the plea that there would be revenue loss affecting the social sector schemes. This means that the extra accrual of funds because of high global price forms the basis of running the social sector schemes. Tomorrow if the global price falls will the social sector scheme be abandoned because the extra revenue is not available? If the tax and duties were made specific and reduced, as demanded by the Left parties, then the burden of higher tax on the oil marketing companies could have been reduced substantially and the rise of petroleum prices could have been avoided.

The same goes for the disinvestment of profit-making PSUs where also the plea of funding the social schemes is being repeated time and again. Social schemes are part of an ongoing process for a welfare State. Under what fiscal prudence this is being linked up with `creeping privatisation’ or `wholesale privatization of public assets’? Out of the 140 profit making enterprises there are 50 central PSUs which had reserves and surplus of Rs 2,21,157 crore amounting to nearly 7.5 per cent of GDP in 2003-2004. But they were actively investing only 30-35 per cent of these resources. The lack of investment has been because the succeeding governments had lost interest in actively guiding and promoting the role and functioning of the PSUs. Another major reason for the lack of investment was because of growing demoralisation due to the uncertainties caused by the disinvestment process making most of the PSUs unable to take a long term view on its business strategy.

What is the fiscal prudence in non-utilisation of more than Rs 2.5 lakh crore reserves and surplus of profit making PSUs and going for asset-stripping through disinvestments in these companies? Most of these PSUs have high equity and a low debt. For example Nalco is a debt-free company with reserves of Rs 4000 crore. Such debt-free companies, instead of going to the debt market when the banks are flush with funds, are being forced to shed off their equity in capital market. What is the logic? Obviously, the future prospect of raising debt from the market for their expansion plans is getting jeopardised. Is it fair to misinform the gullible people with confused nomenclature of navratnas and non-navratnas.

`Navaratna’ status only enables a PSU, having potential to become a global player, to get more autonomy. It is an indication of “degree of autonomy” and cannot therefore be a parameter for disinvestments. Nalco with its profit of Rs 1564 crore, with a sale turnover of Rs 5,324 crore and export earnings, I repeat, export earnings of Rs 2,269 crore, has all the potential for becoming a global player. If Sterlite owned Balco or Birla owned Hindalco can claim to be global player then why not Nalco?

Similarly most of the profit making PSUs are competing in and outside the country against the global players. Prudent management for the sake of public investment demands that necessary autonomy to these PSUs is provided so that they gain the status of navratnas. That is the essence of categorizing certain PSUs as navratnas during the United Front regime. It was not meant to fulfill the criteria of disinvestments set by Shouries and Chidambarams. 

PRIORITY

In the aforesaid debate the Sivaganga MP very correctly summed up the issue of taming the inflation when he said: 

“….taming of inflation must be the highest item on any government’s agenda. Sir, any government worth its salt, any government which is concerned about the poor of this country, any government which recognises that 30 per cent of the people are below the poverty line, any government which is sensitive, any government which has some heart must place inflation control number one on the agenda. This government has failed to do that…”

What has been UPA government’s priority when the alarm bell started ringing? The alarm bell was sounded when the government decided to import wheat in February 2006. The rise in price of wheat in the open market was a clear indication of inflationary expectations. No one knows better than the Sivaganga MP, who is now the finance minister, that the inflationary expectations are worse than inflation itself. Had the price rise and inflation been the priority of this government, the hike in transportation fuels like petrol and diesel would not have been resorted to in June when there were inflationary expectations. By one stroke the government had fuelled the inflation. The government’s priority, particularly of the finance ministry, right from the day one was disinvestment, subsidy cut and various modes of giving concession to domestic and foreign investors. 

The Sivaganga MP talked about 30 per cent people below poverty line. Not only the people below the poverty line which is now benchmarked at those earning Rs 350 per month, but more than 60 per cent of the people of the country earning less than 2 dollars a day can not take the burden of the present price rise. Did it ever come on top of the government’s agenda till the Left parties put their pressure, both inside and outside the parliament, and finally in the coordination committee meeting on June 15, 2006? 

POLITICAL SAGACITY 

It is for the UPA government to decide where its political sagacity lies. Should its priorities be guided by the cacophony of voices from corporate chieftains and business writers in the media or by the supporting parties of the government, the plight of farmers, the workers, peasants, unemployed youths and toiling 60 per cent of the population. People’s concern is obviously not disinvestments, FIIs, or Special Economic Zones etc, but the rise in the prices of essential commodities. The government’s agenda cannot only be the notional “under-recovery of Rs 73,000 crore of public sector oil companies but also “non-recovery” of Rs 1,17,000 crore of tax arrears. Subsidy cut for the common man cannot be the only talking point of the government ignoring Rs 50,000 crore export subsidy to the industry, which is being rampantly misused. “The government must change its priorities. It should remember the following words of present finance minister in the debate 91 months back:

“People eventually vote with their stomachs. People eventually vote on what they see is the concern of the government, the care of the government to their problems.”