People's Democracy

Editorial

PM AT G-20 SUMMIT

Imposing Burden

 Appeasing International Finance  

JUSTIFYING the imposition of further burdens on the people with the latest hike in the prices of petrol, prime minister Manmohan Singh spoke from Cannes while attending the G-20 Summit, that there is a need for further decontrolling of the prices of “most commodities”. This is more than a hint that further burdens depriving the majority of people of a decent livelihood will be imposed. 

Worse, echoing Marie Antoinette during the French Revolution, asking people to eat cakes if they cannot get bread, the PM said that the relentless rise in prices reflected higher demand for these products and was hence a sign of prosperity. “If the economy is going at 8 per cent and the population at 1.6 per cent, then per capita income must be growing at 6.5-6.7 per cent.” 

The reality is that the growth of the economy is contributing mainly to increase the luminosity of `shining India’ while the vast majority of our people are suffering under the impositions of further economic burdens.

What is the reality however? The Economic Survey  (2010-11) informs us that the growth rate of private final consumption expenditure fell from 8.6 per cent in 2005-06 to 7.3 per cent in 2010-11.  Where is the prosperity of the people, Mr Prime Minister? 

Having returned to India, the prime minister called its largest coalition partner, Trinamul Congress’s bluff and negated its Machiavellian propaganda to pose as the sharers of people’s agonies due to this price rise, by refusing to consider any rollback. The PM also exposed the fact that the TMC as members of the union cabinet and the empowered group of ministers were party to this price hike, and, thus party to impose these burdens on the people. 

This apart, such an increased burden on the people is unacceptable.  The myth that petrol is only consumed by the rich who have fancy motor vehicles is exposed by the fact that the bulk of the lower middle class which use two-wheelers are major consumers of petrol.  Further, the hike in the prices of petrol is bound to have a cascading inflationary impact. 

The fact of the matter is that this hike will benefit the government’s exchequer the most.  More than 40 per cent of this hike goes to the government as taxes and duties.  With this hike in 2011-12, the central government expects to earn about Rs 82,000 crore as excise duty alone. During 2010-11, estimates show that the total revenue from the petroleum sector to the central government in the form of all taxes and duties exceeded Rs 1,20,000 crores.  For instance, in Delhi, a litre of petrol would cost nearly Rs 69.  Of this, nearly Rs 30 goes as governmental revenue through the taxes and duties.  Clearly, therefore, it is the government that is bolstering its revenues at the expense of the people.  In other words, the people are subsidising the government and not the other way around. 

Two arguments, however, are advanced to justify  such a hike and indicate further hikes through the decontrol of the prices of all petroleum products.  One is that the oil companies are suffering `losses’ with `under recoveries’ projected to touch Rs 1.32 lakh crores in 2011-12, compared to  Rs 78,000 crores in 2010-11.  What are these `under recoveries’?  Prior to the nationalisation of foreign oil companies, the pricing of petroleum products in India was based on the international prices of these products – the infamous ‘import parity pricing system’.  This was discontinued in 1976 and administrative pricing mechanism was introduced.  As per this, the actual cost of imported crude and its refining was assessed at a reasonable profit for the oil companies and the price was, thus, fixed. 

For instance, the average price of crude purchased in the international market by India at this moment is at $ 110, ie, Rs 5,280 a barrel.  Each barrel contains about 160 litres. Thus, the crude oil crosses around Rs 32 a litre.  Adding the cost of refining and a reasonable profit margin, the effective price of petrol at the oil depots should work out to around Rs 40-41.  Instead, we have a retail price of nearly Rs 70 in Delhi and higher elsewhere in the country. 

With the imposition of the new economic policies under the neo-liberal dispensation, the APM was dismantled and import parity reintroduced for both crude and petroleum products.  This meant that the domestic prices of petroleum products are determined by the global prices irrespective of what the actual costs of production in India are.  Under recovery is the difference between the import parity price and the retail price of petroleum products.  It is, thus, a notional loss that is determined by the international prices and not by the actual costs domestically.  This is, thus, a myth perpetuated by the neo-liberal reformists admirably aided by the corporate media. 

There are, in reality, no losses incurred by our major oil companies. The audited financial results for the year ending March 31, 2010 show that the Indian oil company’s net profit was Rs 10,998 crores. IOC had a reserve revenue surplus of Rs 49,472 crores!  During April-December 2009, the other two public sector companies – Hindustan Petroleum Corporation and Bharat Petroleum Corporation – have earned profits of Rs 544 crores and Rs 834 crores respectively. 

Do not invent myths to impose burdens on the people Mr Prime Minister. 

The second argument advanced by the prime minister and echoed by India Inc is the concern over the fiscal deficit.  It is estimated that the budgeted target of 4.6 per cent of the GDP – Rs 4,65,000 crores this year – is bound to exceed forcing the government to borrow.  The costs of this borrowing will be naturally passed on to the aam admi through higher prices.  Speaking at Cannes, the prime minister said that this target must be “taken very seriously”. He went on to say that expenditure control through cuts in “some subsidies” and disinvestment of the public sector could be a way forward. 

Now look at another reality.  According to the budget papers, the tax foregone, ie, concessions to the rich was a whopping Rs 4,14,099 crores in 2008-09.  This increased to Rs 5,02,299 crores in 2009-10.  In 2010-11, this has been estimated to rise further to Rs 5,11,630 crores.  In this, the tax concessions given to the corporates and high end income tax payers was Rs 1,04,471 crores in 2008-09, Rs 1,20,483 crores in 2009-10. In 2010-11, this is expected to rise further to Rs 1,38,921 crores.  During these three years, a staggering Rs 14,28,028 crores has been the legitimate tax foregone by the government.  Of this, Rs 3,63,875 crores have been the concessions to the corporates and the rich. 

Compare this concession, Mr Prime Minister, with the estimated fiscal deficit of Rs 4,65,000 crores. If these legitimate taxes were collected, neither would there have been any fiscal deficit nor a shortage of funds to invest in developing our much-needed social and economic infrastructure.  This, in turn, would have generated large-scale employment and expanded aggregate domestic demand providing the growth in the manufacturing sector and, on that basis, creating a sustained growth trajectory. 

It is yet another myth that is propagated that these concessions have stimulated growth through increased investments that can happen only if the people have adequate purchasing power to consume what is produced.  Instead, the prime minister is advancing a path of reduction in subsidies for the poor and increase in concessions for the rich in order to meet the fiscal deficit.  This is the character of this aam admi government.  

Have these concessions led to any increases in investment?  The health of the economic fundamentals is crucially dependent upon the rate of growth in gross fixed capital formation. This fell, according to the Economic Survey, from 16.2 per cent in 2005-06 to 8.4 per cent in 2010-11.  The overall investment growth rate fell from 17 per cent in 2005-06 to minus 3.9 in 2008-09 rising to 12.2 per cent in 2009-10.  Worse is the fact that growth rate of investment in agriculture fell from 13.9 per cent to 3.4 per cent. 

So where have all these concessions gone?  Partly they have been laundered to tax havens abroad. Partly they have found their way into speculation including forward/futures trading.  Partly they have gone towards the accumulation of valuables and obnoxious `conspicuous consumption’.  The Economic Survey informs us that the growth rate of valuables has risen from minus 1.4 per cent in 2005-06 to a whopping 54.2 per cent in 2009-10 and further 19.5 per cent in 2010-11. 

In order to propitiate international finance capital and enlarge the avenues for further siphoning off huge amounts of our resources, the budget announced  seven new legislations to carry forward financial liberalisation.  It is precisely because the UPA-I was prevented from undertaking such measures by the Left that India could withstand the devastating impact of the global recession.  With the now-declared  desire to further appease international finance capital at the G-20 Summit in Cannes, the prime minister through such announcements is rendering India to become dangerously vulnerable to international speculative shocks.  Further, with India’s current account deficit widening, such greater inflows of speculative finance does not augur well. 

This is precisely what the developing countries are seeking from the so-called `emerging economies’ in order to overcome their crisis with the European Union and its currency, Euro, seriously faltering under the burdens of growing sovereign debts of its members like Greece, Italy, Portugal and Spain in the latest round. 

This neo-liberal trajectory of imposing further burdens on the people is what is being resisted globally today.  Such popular pressures must be intensified in India to reverse this policy orientation both in the interests of the people and to ensure a sustained growth trajectory based on enlarging our aggregate domestic demand. 

(November 09, 2011)