From public banks burdened by bad loans to monopolised markets to widespread corruption, the Modi Government has, no doubt, inherited a messy economy. But it has to fix it. Rejuvenating the farm sector is a good place to start
It’s not easy for a Government to manage a bad economy that it has inherited. The NDA Government is afflicted with this problem. The Indian economy was infested with severe diseases — siphoning of funds, scams, high bank non-performing assets, monopolised markets and high prices.
Some of these, like the untimely rise in the prices of food grains, pulses, and commodities, have strained the nation. The recent Consumer Price Index-based inflation climbed by 5.7 per cent on the back of rising prices of food grain, pulses and vegetables.
Wholesale Price Index also showed a nominal increase. The Modi Government took some actions in the form of excise duty hike on sugar and the creation of buffer stock by procuring pulses. However, the 20 per cent duty hike on sugar exports and increased availability had a sobering effect on the prices.
The Government also initiated measures to control the prices of pulses and other commodities. Prime Minister Narendra Modi expressed his concern over the situation and asked officials to monitor the situation on a weekly basis.
Modi’s call to taxmen to build the “bridge of trust” is also timely. The Prime Minister should look at how personal income tax keeps reducing with inflation. Union Finance Minister Arun Jaitley utilised the price stabilisation fund to keep a check on the prices. He took Rs630 crore for the creation of buffer stock for pulses and onion. The Government is importing pulses from Myanmar, Panama etc.
The Government is supposed to act in difficult situations. Importing staple dietary needs like pulses is a short-term approach. For a long-term solution a new look towards the economy is needed. Pulse production has been falling for over 25 years. Piecemeal steps to increase it have not worked.
Food and Public Distribution Minister Ram Vilas Paswan said that domestic demand veers around 24.6 million tonnes against the production of 17 million tonnes. Added to this, the recent drought has increased the availability gap by 7.6 million tonnes. The Union Government built a buffer stock of 15 million tonnes.
All of these are suggestive of the Government’s intent. However, the pricing formula of buying at Rs66/kg and allowing the States to sell at Rs120/kg is puzzling. If the Government itself is allowing so much of margin for one commodity, it is likely not to set a proper example for other businesses. Nobody doubts the intention of the Government, but it has to act business-like. 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. Citizens, however, expect it to create an atmosphere of checks and balances in the market. The recent moves are indications of the seriousness. But if the Government takes the right move, it may create a situation similar to what former Prime Minister Atal Bihari Vajpayee had done. The Modi Government has initiated moves, which if taken forward properly, it can have similar sanguine effects.
During these few years, due to various steps or inertia of the intermediate Governments — UPA1 and UPA2— lots of convolution have taken place in the market. There is monopolisation of some big groups. Their profits during the 2004-2014 bounced several fold.
Should the Government be held responsible for such malpracticesIJ No, it should not be. All the same, no Government can absolve itself of any irrational and unethical practices in the market or society. It has to look at these aspects as well. large groups should be prevented from having their way at public expense. In the new marketing and investment scenario, these are some of the critical areas requiring deft handling.
Two decades ago, AT&T had become a powerful company. The US used its anti-trust laws to clip its wings. That was too drastic. However, for the functioning of a democracy, the Government must arm itself.
Food prices are not the only item that needs 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 political conditions and executive moves ensure that no volatility take place. Healthy conditions and appropriate competition, not cartelisation, have to be created. It is 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 of producers.
The key to maintaining 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.