By Commentary February 8, 2014

UPA’s sham on inflation

After almost a decade of misrule, it has dawned on the Congress-led United Progressive Alliance (UPA) that inflation is… well, something very bad. So, Finance Minister P. Chidambaram recently said that inflationary pressure and structural bottlenecks were hurting the growth process—something that was obvious to all but the entitlement-obsessed dogmatists.Chidambaram is a little better than Rahul Gandhi who realized in the last week of December 2013 that fruits and vegetables should be exempted from the Agricultural Produce Marketing Committee (APMC) Act by January 15. The diktat to the Congress chief ministers was in response to the fact that fruits and vegetables have contributed much to food inflation.On the face of it, it is astonishing that a coalition that came to power for the sake of the aam aadmi remained oblivious to something that concern all sections of society, especially the poor. The numbers tell the story: retail inflation during four years (1999-2003) of National Democratic Alliance (NDA) rule was 3.1 per cent, while it was 6.1 per cent under UPA I and around 10 per cent under UPA II. These are the estimates by Zyfin, a financial information company. These figures prove beyond doubt that the UPA regime has been an unmitigated disaster for not only India Inc but also for the man in the street.

Consider the irony: the fortunes of the grand old party revived on the premises that the NDA, under the Bharatiya Janata Party (BJP), was blind to the concerns of the poor, that it was preoccupied with growth and was insouciant about ‘inclusion,’ and that the need of the hour was ‘inclusive growth’—and what we get instead is jobless growth (60 million jobs during 1999-2004 and three million during 2004-10) and high inflation! Political consequences are also becoming evident; the GOP has been on a losing streak, despite its apparent solicitude for the ‘marginalized’ and the ‘downtrodden.’

So, now UPA grandees are waking up to such mundane issues like inflation and employment. They were so busy perfecting the right-oriented political philosophy and implementing its dogmas that it never occurred to them that high prices and dearth of jobs could hurt common people. The rural employment guarantee scheme, the forest rights legislation, the right to food, etc., consumed all the energies of government. Bad governance and unprecedented corruption made the matters worse.

This is not to suggest that the BJP was, and is, full of visionary leaders who could formulate policies that created so many jobs despite a modest growth rate and kept prices low. A big difference between the BJP and the Congress is that the likes of Aruna Roy and Medha Patkar hate the former and, therefore, keep away from the saffron party. This is the reason that the BJP gets immunity from these professional revolutionaries and their discredited theories. The Congress, on the other hand, has established a symbiotic relationship with these radicals over the decades. They managed to worm their way into Congress president Sonia Gandhi’s kitchen cabinet and steer the course of policy making. Owing to the resilience of the economy because of 13 years of unbroken reforms (1991-2004), the growth rate was high during UPA I; but the landmines that Sonia’s chums had planted in the economy started to trip in the second edition of the regime. The rest is a series of electoral debacles.

Interestingly, the very welfarist policies favored by the UPA have proved to be its undoing; there was some kind of inevitability to it, as Milton Friedman explained in a 1980 lecture. According to the Nobel-winning economist, there is inflation because governments create a large quantity of money. When government spends more than it earns, it does so either by printing more money or by borrowing. Printing money is a very attractive device, he pointed out, for legislators don’t have to vote for it. Inflation is a tax that is imposed without representation and nobody has to vote for it.

Inflation is just one of the manifestations of the rot that has set in the economy. It is indeed disingenuous on the part of Chidambaram and Rahul to express concern about inflation or to show urgency to tackle it. Way back in 2004-05, Economic Survey had talked about APMC reforms, direct marketing, and corporate farming. It also wanted “to make agricultural marketing system more vibrant and competitive.”

Even Economic Survey 1998-99 had expressed similar views: “Marketing reforms have so far encompassed largely the foodgrain sector. Marketing of fruits and vegetables has received little attention so far and there is reason to believe that there is much larger gap between the producer price and the consumer price due to a large number of intermediaries operating in unregulated and unsupervised vegetable and fruit markets. This aspect requires urgent attention.”

Besides, almost every economist of consequence has emphasized the need for APMC reforms. The Planning Commission has done it on a number of occasions, but to no avail.

In short, UPA bosses knew very well about the causes of food inflation as also the cure, but they did not do anything to improve the situation. And now, when the prospects of their inaction are threatening to unseat them, they are exhibiting sanctimonious concern for the poor. As Daagh Dehlvi said, “bari dair ki meharbaan aate aate.”