Prez address exposes govt's sincerity to hold the price line

Written by ASHOK B SHARMA | New Delhi | Updated: Feb 24 2010, 00:52am hrs
Governments intention is amply clear. It would do little to contain the rising prices of essential commodities. It is only interested in fostering a GDP growth rate at over 7% in the current year.

This is the only thing that the government can show to the world and say - Indias economy is growing at a sustained rate, while the major developed economies have shrunk on account of the global financial crisis.

The growing disparity, wage deflation, increasing joblessness and rising prices of essential commodities and services are not the issues which the government sincerely wants to address

The Prime Ministers Economic Advisory Council headed by C Rangarajan has projected a GDP growth rate of 7.2% in 2009-10, 8.2% in 2010-11 and 9% in 2011-12.

The government is, however, more optimistic than the Rangarajan panel. The President, Pratibha Devisingh Patils address to the joint session of the Indian Parliament talks of GDP growth rate of 7.5% in 2009-10, over 8% in 2010-11 and 9% in 2011-12.

The Presidents address is the refection of the governments mind and the content of address was earlier approved by the Cabinet. The Presidents address gives an indication of policies likely to be revealed by the government when the finance minister, Pranab Mukherjee would be presenting the annual Budget within few days.

The Presidents address instead of suggesting concrete measures to rein in rising prices tries to defend the situation and holds the development and welfare schemes responsible for price inflation. They (higher prices) are also to some extent a reflection of the implementation of our schemes of inclusive growth involving payment of higher procurement prices to our farmers and the impact of higher public spending on programmes of rural development, which have successfully raised incomes in the rural areas, the presidential address said.

The government and its economic advisors should know that the real cause of price inflation lies somewhere else. It is also not due to drought or shortfall in agriculture production. There is ample food stock with the government to meet the situation. The culprit of the situation is the wide divergence in wholesale and retail prices. When the wholesale prices have shown a declining trend and the retail prices have shown a rising trend. Over the year when price inflation rate measured in terms of the movement of wholesale price index (WPI) touched zero and turned negative, that measure by the movement of consumer price indices (CPIs) remained substantially high and even at double digit level.

If the government sincerely wants to address the situation, it should address the anomalies in the chain between the wholesalers and the retailers.

To say that the welfare and development programmes have contributed to the price inflationary trend is a mockery of the poor. It is a duty of a welfare state to initiate programmes for the well being of the economically weaker and socially backward sections. This is what is called the real economy.

The concept of real economy gained some prominence after the global financial crisis when the world leaders came to realize the situation In fact the governments spending has helped the economy to grow.

But GDP growth alone cannot solve the problem, The magic figure of 9% to 10% GDP growth may be achieved, but it cannot resolve the issue of growing poverty. The government needs to control the market forces which are responsible for inflation.

The impact of global financial crisis has already caused wage deflation in many sectors of the economy. Added to this the rising prices, increased joblessness have burdened the poor. Essential services like transport, health and education have become costlier.

If the government intends to move to the high cost economy by aping the industrialized countries, then it should take measures to raise the income of the poor. There should be a system for measuring the income growth of different sections of the people and for addressing the economic disparity. There should be adequate safety net for the poor and vulnerable

But high cost economy has pitfalls. The recent global financial crisis has shown us the nature of this pitfall.

Droughts and floods in different parts of the country have taken a toll on agriculture and farmers income. As per projection, agriculture growth in the current year is likely to decline to -0.2% as compared to 1.6% in the previous year. The projected GDP growth of 7.2% would be driven by 8.6% growth in industry and 8.7% growth in services.

The government has incurred a fiscal imbalance due to doling out stimulus package, mostly to the industry. Some experts are calling for a rectification. Some even say that food and fertilizer subsidy bills have become a burden. But the reality is that the stimulus package to the industry is the primary cause for the widening fiscal imbalance. Good governance is needed for implementing welfare schemes and routing subsidy directly to the beneficiaries which would go a long way to resolve the problem.