When domestic and foreign investors, the Government's own PSUs and economic advisers, have all given up on the regime, why blame the main Opposition for asking it to pack up and leave sooner than laterIJ
Twelve hours after the Congress-led UPA passed the food security Bill in the lok Sabha on August 26, the most non-political reactions came from the market. Between 9am when the bourses opened and 4.58pm when they were about to close, the rupee slid from Rs 65.005 to the US dollar to Rs 66.19. As the downslide continued unabated, all indications were that the rupee might touch 70 to the dollar. The concurrent 590 point blow to the Sensex was yet another warning that the economy was in a ruthless downward spin. It was not merely a case of foreign exchange speculation, the Sensex drop made clear.
Market operators did not hide the primary reason behind the fall: Industry had no trust in Union Minister for Finance P Chidambaram’s repeated claims last week that the food security scheme would not balloon the fiscal deficit. A number of independent economists like Surjit Bhalla, corporate economists like Ashish Vaidya, rural economic experts like Ashok Gulati, who heads the National Commission on Agricultural Costs and Prices, as well as the chief economists of large Indian and foreign banks have warned that the scheme will cost much more than the estimated Rs 1.25 lakh crore, which in itself is also a huge amount. In fact, warnings against the Congress’s mindless profligacy — allowed by the UPA merely to satisfy the whims of its well-sanitised chairperson — have been in the air for over a year now.
let us not forget that it took the Congress four years to get the food security Bill accepted within the ruling alliance alone. This was because there were persistent doubts even within the UPA on the feasibility of the proposed legislation or even the need for it, especially when some States — notably BJP-ruled Chhattisgarh and the AIADMK-ruled Tamil Nadu —have improved upon the existing Public Distribution System to ensure food security.
Even the other day NCP chief and Agriculture Minister Sharad Pawar publicly expressed his misgivings if the country could grow enough grains to meet the requirements of the scheme and still leave something for the open market to serve those who are not entitled to the subsidised food. Also, if the Union Government sucks out 63 million tonnes of food grains from the market — where the total surplus grains out of an annual production of 250 million tonnes is not more than 100 million tonnes — food grain prices will hit the sky.
Even if you assume that all 800 million targeted beneficiaries of the food security scheme have access to the promised quantity at designated shops, another 400 million will still be at the mercy of grain merchants who’ll charge exorbitant rates. The middle class will be forced to buy rice/wheat at more than Rs 40 a kilo. It will wipe out all chances of household savings being maintained at even 26 per cent — a figure that has stagnated anyway for sometime now due to the UPA’s economic mismanagement. lower savings means lower investments, and with interest rates going up and aggregate demand falling, businesses will shrink further and the economy will go into a tailspin.
For the last four years, the Indian economy has been on the sickbed. In January 2011, the eminent economists who constitute the Prime Minister’s economic advisory council warned that due to policy paralysis in Government, investors are losing confidence in the economy. But it was not until after 2011 that the Prime Minister began to speak of resurrecting reform measures. By then, even the Government’s own public sector undertakings were unwilling to reinvest their mounting cash surpluses despite state prodding. Most private sector investors were competing to invest abroad rather than in India, as scams hit the Union Government one after another, and policy paralysis grew worse because a worried bureaucracy refused to take any initiatives.
When domestic and foreign investors, the Government’s own PSUs and economic advisers, all have lost trust in Mr Chidambaram’s assurances (his roadshows in Washington, DC, Singapore, Hong Kong and Tokyo did not fetch a single additional dollar, as the rupee’s fate reveals), is the main opposition party out-of-line in asking this regime to fold upIJ
To be fair to Mr Chidambaram, he is not the real villain of this piece; nor is it his predecessor, Pranabda. That blame must be laid at the doorstep of the UPA chairperson who has surrounded herself with a set of jholawallahs at the National Advisory Council. These persons enjoy enormous clout in economic policy without any corresponding responsibility to Parliament.
The trouble with the UPA Government is that it has to listen to this herd of hot heads and ideologues while its chief bends over backwards to be seen as pro-poor. It reminds us of the ‘Garibi Hatao’ days of the early 1970s when leftists and Socialists who advised Prime Minister Indira Gandhi used that slogan to beat her political rivals. The economic disaster that followed the reckless ‘reforms’ of those years — such as bank nationalisation, wheat trade nationalisation, stopping legitimate donations to political parties — resulted in rising inflation, foodgrains scarcity and the licence-control raj.
But if Indira Gandhi had to impose Emergency to save her career, her daughter-in-law has burdened the country with a number of wild-cat schemes like the Mahatma Gandhi National Rural Employment Guarantee Act (cost Rs 1,83 lakh crore), the Right to Education Act (cost Rs 1.82 lakh crore), the Right to Information Act (administration is squirming under it), the Forest Rights Act (that has brought mineral production and exploration to a standstill) and now the National Food Security Bill. These costs have clogged the fiscal pipelines and expanded fiscal deficit.
The food security Bill might prove to be the proverbial last straw (cost Rs 1.25 lakh crore to three lakh crore rupees) that will break the camel’s back. By some strange coincidence, Ms Gandhi could not be present to vote for the Bill. Blame destinyIJ Was it an omenIJ