What is happening under the banner of “war on inflation” launched on the June 25, 2008, the 33rd anniversary of the declaration of the infamous ‘Emergency’, reminded me of a delightful Gujarati folk tale regarding a “camel-riding apothecary”.
Once upon a time, there lived a celebrity apothecary who sat all the time on the back of a camel and refused to come down or to let the camel sit down. He was the disciple of a renowned guru and had no peer in the art of medication and surgery. It so happened that there was some kind of an epidemic that had affected the entire population of the walled village.
People rushed to the great apothecary (vaid) and prevailed upon him to treat the afflicted villagers. The sapient doctor came to the village but got stuck at the entry gate. It was too low to allow both the camel and the apothecary riding on its back to enter at the same time. If only the great doctor had agreed to take down the sizeable bundle of medical volumes that he carried all along, he might have succeeded in getting through the village gate.
Since he could not be prevailed upon to separate himself, even temporarily, from his books nor get down from the camel, the entry into the village became practically impossible.
The wise man gave suggestions one by one, advising the villagers to pull down the gate, or cut the camel’s neck. His advice was promptly acted upon but to no avail. Finally, he entered the village, but only after the entry gate was broken, the camel’s neck cut and the burden of his learned books removed.
On his part, the learned doctor who is in charge of the War on Inflation 2008 finally started treating the nation afflicted by soaring prices on June 25, putting all his prejudices and points of honour aside.
When inflation was in the incipient stage of 7-9 per cent, the Finance Minister concentrated all his attention on the most superficial symptoms of the disease and tried to treat the rise in prices of vegetables, fruit, pulses and edible oil, in the manner of Attila the Hun. He ordered reduction in the Customs duties on edible oil, opening the floodgates of the commodity. He was not deterred even when the countries exporting edible oils clamped a massive export duty on edible oil, wiping out all the advantage of production and Customs duty in India.
He banned the export of non-basmati rice, though it was quite clear that it was difficult to distinguish between the non-basmati varieties and some others that pass for basmati. He imposed a ban on the storage of food-grains and let loose a spate of police raids on warehouses. The traders’ stocks went even deeper underground and the prices went even higher.
Finally, to deny all freedom of marketing to primary producers, he banned futures trading on four agricultural commodities in addition to the four already banned in 2007, taking the total number of banned commodities to eight. As if all this was not sufficient, he imposed a commodity transaction tax (CTT) so hefty that it threatens the very existence of the Commodity Futures Markets.
Just as, even before entering the afflicted village, the learned apothecary had caused general devastation all around, the producers of the commodities whose prices increased were in utter despair. In spite of the fact that the monsoons arrived on time, they had little enthusiasm for increasing either the yields or the production. It was quite clear that the vaid had little interest in improving the lot of the ailing people.
Then, suddenly, inflation rose to 11 per cent. Remarkably, at this point in time, rise in the commodity prices was actually negative and the learned doctor could, by no stretch of imagination, pass on the blame to the Minister in charge of Agriculture. The situation became so serious that it looked as if the Queen might order, “off with the apothecary’s head” for fear that the people might otherwise clamour for hers.
Now the vaid had to give up all his pride and prejudices. The learned pharmacist knew all along that the affliction of inflation was caused not by the high prices of primary commodities but by the enormous purchasing power that had been pumped into the hands of urban consumer under the “inclusive growth” doctrine of the UPA. He had, deliberately, avoided attacking the real source of the affliction, lest that line of treatment invoke the Queen’s wrath.
The learned doctor finally started the classical deflationary measures. The Reserve Bank of India had been controlling both the cash reserve ratio as also the Repo rate that would signal an all-round increase in interest rates and make loans more expensive. The decision to start the new line of treatment would affect only the purchasing power of the urban consumer that is obtained through bank credit. No improvement is expected in the near future — not, at least, till the arrival of the new kharif crops. Only then can the prices be expected to ease.
The Governor of the Reserve Bank of India has already hinted that the monetary policy moved only by signals from the Ministry of Finance may not be sufficient to meet the current crisis. ‘The Working Class Family Income and Expenditure Survey’ recently released by the Ministry of Labour brings out clearly that the monthly incomes of the salaried and wage-earning classes have been increasing substantially. It also brings out that the family expenditure on food items is declining.
This clearly points to the need to curb not only the credit available to the urban consumer but restrain their incomes as well. Further, it confirms statistically that all policies aimed at depressing the prices of agricultural commodities are misplaced. The policy calculated to curb the incomes of the fixed income groups will not be palatable to the UPA since it will burst the balloon of its “inclusive growth” theory.
The village may still be saved. But the mystery is: Why did the learned doctor not start treating the known cause of the disease straightaway rather than causing the general devastation at the entry gate to the village?
No comments:
Post a Comment