Populist measures and inflation

Shiban Khaibri
Slew of populist measures in the run up to the elections just a few weeks away, to woe voters by the government, are undoubtedly going to be at the cost of the health of the country’s economy. This type of apparent politics having a sway over the fundamentals of economy and growth of the country, should bother each one of us and not make us feel happy, going by the small gains harvested in the short run. Does the decision lack economic sagacity even the timing of the decision notwithstanding? In Sept 2012 when the cap of 6 subsidized cylinders per household per annum was announced by the government, this writer through these very columns had expressed apprehensions of politics going to be played in capping of subsidized LPG cylinders in immediate future. The limit of just six cylinders was imposed by the government citing the reasons and the need of ridding the economy of an overwhelming amount of subsidy paid to offset the cost burden on the people. That is what we were told were measures of economic reforms which were cardinal for a healthy economy and all arguments in its favour were being put forth by its protagonists. What has happened now, what quantum of rapid and high GDP growth have we attained and no further, so called, economic reform measures needed, that it would be all in the interests of the health of the economy to get reverted to subsidies in a big way so as to put a burden of Rs.80,000 crores on the economy annually by raising the cap on LPG cylinders from 6 to 9 and now to 12. Why was the decision of fixing the limit of the subsidized cylinders taken earlier and what happened to the much hyped Aadhar connected subsidy transfer scheme which the UPA2 boasted of being a “game changer”? Has it been consequently put on hold or just thought to be redundant and a wasteful exercise?
It may be recalled that on Jan30, the UPA2 government took a decision and announced that it had raised the cap on subsidized LPG cylinders from 9 to 12 per household per year from April onwards this year. Reserve Bank of India governor R. Rajan criticized the government move and called it “misdirected subsidies” on the premise that the decision was going only to benefit those who could afford to pay the actual market price. He further said that the things very important on which the government must spend are not being spent on. It is ludicrous that the government took such a sensitive decision in an economic environ of high inflation, slow economic growth and a struggle for a paltry 4 to 4.5% GDP growth. The Union Finance Minister, P.  Chidambaram on the other hand, is readying for massive spending cuts and deferring major spending projects even in sensitive areas like Defence and populist measures like the one under reference prove perilous humps in the way.  Food inflation has adversely hit and broken a common citizen for the last 9 years. Name any item, even vegetables which in the winter season usually are comparatively softer in prices if not cheaper, do not show any signs of stabilizing and the common people do find it hard to manage sustenance. It is ironic that the government could realize the problems faced by the people on account of LPG capping only when strongly “conveyed” by Congress vice – President Rahul Gandhi now belatedly resulting in his increasingly “urging” Prime Minister Manmohan Singh to “raise” the cap from 9 to 12 at the AICC session earlier in January this year.
The move comes in close heels of and in utter poor response to the President’s address to the nation on Republic Day that no one should think and treat the government to be a “charity shop”. As Finance Minister of the country, Pranab Mukherjee had tried hard and to a larger extent succeeded as well, in keeping at bay such tendencies and the economic scenario then, was not as dismal as it is now. He further very aptly said that “elections do not give license to flirt with illusions, those who seek the trust from the voters should promise only what is possible.” Emboldened with the flip flop of the government, the Samajwadi Supremo Mulayam Singh Yadav while reacting to the “pro – people decision” demanded that the limit should be raised to 24 and the poor sections should get it free of cost. The government with our taxes was paying subsidy at the rate of Rs.800 per cylinder per annum. The subsidy on cheapest, if not virtually free of cost , items of food grains under Food Security provisions was going to put an additional burden of Rs.158000 crores  per year. The whooping amount being spent on another ambitious scheme proven as game changer for the UPA in 2004 and to a larger extent in 2009 called as MGNREGA, could have been  cobbled together in a planned way and used to create economic development, employment, increased production in core sectors especially agriculture and sincerely run PDP outlets, which in turn could have resulted in  improvement in per capita income, raised the purchasing power of the poor and of the middle level income brackets. Have our policy planners in matters of economic development thought only to provide freebies and releasing and withdrawing subsidies at individual will of political leaders, which in veiled form, Rashtrapati Mukherjee referred to in his address to the nation on Republic day this year? The reasons of gradual plummeting from a 9% GDP growth to this year’s projected 4 to 4.3 per cent should concern us all and put on hold dolling subsidies. Our industrial and even services sectors are performing below the average and are facing demand crisis. Chinese goods are flooding our markets in almost all spheres and domestic industries mainly small, middle and cottage are facing problems of all hues creating a spurt in unemployment.
The question is that if the government delivers subsidies especially on occasions of elections without taking into consideration economic factors, who pays for it?  It will come from the pockets of those people who were getting subsidized gas.  Now who and how the poor shall get benefited or inversely the benefit which could have accrued to the poor shall be shared by the affluent,why? Just on Jan2 this year Petroleum Minister Veerapa Molly had ruled out and rejected the proposal of raising the cap. The Prime Minister in strict economic language only a year and a half back had categorically made it clear that “money does not grow on trees” but it seems that Rahul Gandhi with an eye to do a hat trick in 2014 for his party has rejected that golden saying of the PM like he did with the cabinet decision of the ordinance regarding tainted politicians, yet he speaks of decentralization of power. When the move of imposing limit on the number of cylinders was criticized and there was hue and cry all round even by the main supporters of UPA2, the SP and the BSP, the government did not roll back the decision citing fiscal constraints and wastage of scarce resources but the Congress President Smt. Sonia Ji “suggested” that Congress ruled states would allow 9 cylinders and it was implemented immediately benefiting those who had gone with the Congress Party.
Economists rue decisions like these being antagonistic to economic principles but our politicians appear to be comfortable as these political pushes have prospects of yielding rich dividends for them and their political parties. Who cares for the country?