Inflation Deflates UPA’s Aam Aadmi Claims

Barely a month ago, Congress and its UPA allies were waxing eloquent about the debt waiver “New Deal” for the Indian farmers. But even as the reality and scope of the debt waiver came under question, the ugly face of inflation reared its head. And this time inflation is not something that will yield to token announcements, which government is making aplenty.

In India, inflation figures are at their highest level since November 2004. The wholesale price index-based inflation rate, which soared to 7.41 percent year-on-year in the week ending March 29, has marginally declined to 7.14 percent by April 05 against an expectation of 7.19 percent. Data released on April 17 shows prices of metals and food articles rising most strongly. The biggest hit has been taken by the poor since the food prices have a larger weight in the inflation indices.

Soaring food prices are leading to protests and near riots all over the world, especially in Asian and African countries like the Philippines, Haiti, Egypt, Cameroon, Burkina Faso, Indonesia, Ivory Coast, Mauritania, Mozambique, and Senegal. Mainstream economists describe the global food crisis as a food “shortage”. The diversion of food grains towards fuel (ethanol) has been cited as a factor in the current crisis (and our own Finance Minister P Chidambaram has spoken with pious concern about the skewed priorities of ‘some countries’ which prefer to divert food to fuel cars and an affluent lifestyle when the world’s people go hungry).

While it is true that diversion of foodgrain for biofuel may be a factor, the fact is that there’s enough food: the problem is that it’s out of reach of the poor! World Food Program Executive Director Josette Sheeran recently remarked about Sub-Saharan Africa, “We are seeing more urban hunger than ever before. Often we are seeing food on the shelves but people being unable to afford it.”

Today, there is more food available per capita than ever before in the world. It is estimated that if the total amount of food available in the world today is apportioned equally between all the people on earth, we can give each person at least 4.3 pounds (nearly 2 kg) of food in a day: two-and-a-half pounds of grains, beans and nuts, one pound of fruits and vegetables and another pound of meat, eggs and milk. Yet one out of the six billion people in the world go hungry. This hunger is not caused by food scarcity, but by a glaringly unequal system of distribution. UN statistics tell us that in a span of nine years, the income ratio between the richest 20% and the poorest 20% of the world population has widened from 60:1 to 74:1. The overall consumption of the richest 20% is now 16 times that of the poorest 20%.

Our government has sought to wash off its hands from its failure to keep food prices down by saying that it is a global phenomenon and much of the inflation is actually ‘imported’, much in the same vein as corruption was once said to be the global phenomenon. Well, if inflation is imported, so has growth been imported all these years! After all, our governments abandoned the security net needed for feeding world’s second population; crippled the PDS in the name of avoiding diversion of food grain; and on the other hand granted a bonanza of SEZs and numerous tax holidays to big industrial houses, ostensibly in the name of generating high growth. Industry was in boom due to US consumer demand which, aided and encouraged by big financial institutions in living beyond their means, fuelled demand for manufactured goods. Only the subsequent collapse of housing prices in US led to a slowdown in demand. Eventually the US Dollar has depreciated making it difficult to export.

This short-term crisis comes on the top of long term neglect of agriculture with stagnant food grain yields and minimal expansion irrigated area and slowing down of fertiliser use in last 15 years. For a long time Government did not see the need for increasing investments in the farm sector. Public sector investment in agriculture has been declining since 1990-91 and the share of agriculture in gross domestic capital formation has dropped to 15 percent from around 25 percent.

Technology input measured as the yield potential of new varieties of paddy, wheat, maize, groundnut and mustard/rapeseed has been growing at NIL per cent since 1996-97 as against an average growth rate of yield potential from 1980-81 to 1996-97 of around 3 per cent per year. The net result is that the food grain production has not increased fast enough for us to achieve self-sufficiency.

Weakening of the public procurement system was accompanied by a free rein to domestic and foreign corporate players to procure and trade in foodgrain and other agricultural commodities. Compounding the problem is the rampant speculation in food related commodities and even in other commodities like crude petroleum, which the Government did nothing to curb. In the name of commodity hedging and trading, the speculators and hoarders are having field day.

In the face of present crisis, Government has taken half hearted measures to minimize the impact of price rise by reducing the rate of taxes and duties on food stuff. Chidambaram keeps warning of action against cartels in the steel and cement sectors. But Minister of State for Steel Jitin Prasada has declared, the very next day, that “there are no cartels in steel”! These meagre measures and empty threats in the name of checking price rise are neither effective nor sufficient.

While the food prices are up, the price rise in steel and cement in construction sector has made it impossible for the genuine householders to own a house. At the same time price rise translates to profit for the rich and propertied, and the Tatas, Jindals and Mittals enjoy a huge explosion in profits with the boom in steel and construction. In this ‘rising’, the India rich are breaking into world’s top rich list, gobbling up enterprises in India and abroad, appropriating the land of the poor, and colluding with politicians to claim to the mineral wealth of the poor, even as in contrast, that 77% of Indian people live on Rs. 20 a day, and are denied even the barest safety nets of PDS rations.

It is the Government’s policies of liberalisation that are squarely responsible for the soaring prices – and the UPA Government can prepare to meet the fate that its predecessor the NDA regime did if it refuses to prioritise the poor and protect them from the price rise which is its own ‘gift’ to the nation.


What is commodity trading?

In real life, agricultural products being high in volume cannot be transported easily across geographical regions. This puts limits on the geographical reach of seller, i.e., the farmer, and the buyer. Further, given the time gap between sowing and harvesting, there is lot of uncertainty at the time of sowing about the price which the crops will yield. In theory, commodity exchanges seek to address these problems. They aide in what is called ‘price discovery’, by the means of placing buying and selling rates of commodities across length and breadth of the country on one single platform.

Commodity exchanges also enable what is called ‘futures trading’ which is discovery of price for future, i.e, the price at which one wishes to sell or buy goods say 3 months hence can be settled today itself. As a number of buyers and sellers keep on entering trades on the ‘spot’ and for futures, the influence of local middlemen decreases, and both sides get a fair price. This is supposed to enable the farmer to know rates applicable.
However, in a market where genuine hedgers are minuscule, and speculators dominate, the very rationale for the market — price discovery and price risk management — loses relevance. There is neither genuine price discovery nor real price risk management.


US led boom - and now inflation

The current surge in commodity prices is a direct result of the easy money policy that led to the asset price boom in the global economy. The consumption-led boom in the US had its origins in the easy money policy. While the people in US got credit at very low interest rates, the demand for assets such as housing surged. Due to the high demand the prices of housing soared. Against the increase in prices of their homes, people were encouraged to take more loans for consumption and thus borrowed more for consumption. Once the demand for housing came down, the home prices collapsed and the loans taken earlier were no b afloat. The expansion in liquidity due to rate cuts has led to a huge amount of money chasing commodities, pushing up their prices.


Surviving on Rs.20 a Day….

… When inflation crosses the 7 point mark and human labour becomes cheaper

According to the Report of the National Commission for Enterprises in Unorganised Sector (NCEUS), 77% of Indian people have less than Rs. 20 a day to spend. Many studies have shown that the poor all over the world (especially in rural areas) spend 70% of their meager income on food. When prices shoot up, the rural poor are forced to spend almost their entire income to secure the bare minimum of food – and yet remain hungry and suffer malnutrition.

Even before the latest spurt in prices, a daily wage worker, a member of this vast 77% of India’s population, would have made ends meet with great difficulty. Now, the rocketing prices are nothing short of back-breaking: prices of food and other essential commodities have soared by more than 40% during the last few months.

With Rs. 20 in hand, let us take a trip to the market, to see how far we can stretch it to accommodate the most modest daily needs of a human being. (The calculations are a layman’s estimate of average daily minimum consumption based on an approximation of prevailing prices.)

Flour or rice

*Rate : Rs. 16 per Kg *Daily approx. Consumption : 350 gm. *Daily expense : 5.60

Mustard oil

*Rate : Rs. 70 per Kg. *Daily approx. Consumption : 40 gm *Daily expense : 2.80


*Rate : Rs. 50 per Kg. *Daily approx. Consumption : 50 gm. *Daily expense : 2.50

Green vegetable

*Rate : Approx. Rs. 20 per Kg. *Daily approx. Consumption : 200 gm. *Daily expense : 4.00


*Rate : Rs. 8 per Kg. *Daily approx. Consumption : 100 gm. *Daily expense : 0.80


*Rate : Rs. 8 per Kg. *Daily approx. Consumption : 100 gm. *Daily expense : 0.80


*Rate : Rs. 80 per Kg. *Daily approx. Consumption : 5 gm. *Daily expense : 4.00

Green Chili

*Rate : Rs. 40 per Kg. *Daily approx. Consumption : 5 gm. *Daily expense : 2.00


*Rate : Rs. 20 per Kg. *Daily approx. Consumption : 50 gm. *Daily expense : 1.00

Milk for two tea

*Rate : Rs. 24 per lt. *Daily approx. Consumption : 50 ml *Daily expense :1.20


*Rate : Rs. 18 per Kg. *Daily approx. Consumption : 20 gm. *Daily expense : 0.36


*Rate : Rs. 200 per Kg. *Daily approx. Consumption : 10 gm. *Daily expense : 2.00


Approx. Rs. 10 per day

Soap & tooth powder etc.

Approx. Rs. 1 per day

These expenses on food and fuel for just one person comes to around Rs. 38 per day. Now imagine, if he or she falls ill and needs a painkiller or an antibiotic?!

And how is a person earning less than Rs. 20, to pay for clothes? A roof above their head? Children’s education? Local transport? Add all of that and it is certain to come to more than double the amount of Rs. 38.

Remember, this estimate is a rough one, based on very minimum, and does not fulfill all requirements scientifically; otherwise it would have been much higher. Moreover, for a family of four this amount would treble!

The aam admi on the shoestring budget of Rs.20 will just have to go without a meal or two… or can eat cake?

Liberation Archive