Truth has a way of sneaking out, and from unexpected alcoves. On the day preceding the presentation of the budget last month, as the Punjab and Uttarakhand poll results were being announced, the prime minister was, justifiably, on the backfoot: the electorate, he explained, must be sulking because of inflation threatening to reach a double-digit rate. The government was doing its best to put a leash on runaway prices; but then, the prime minister confessed, the harsh reality has to be faced. The lovely, lovely rate of growth of gross domestic product needs to be sustained; in order to do that, it is necessary to put up with a wee bit of price increase; a dose of inflation — who does not know' — is propitious for growth.
It is good that the prime minister did not watch his words and let candour take charge of him. Having been a professional economist, he is naturally well-versed in the mechanism of a free market economy. It is the holy obligation of the capitalist entrepreneur to squeeze profit from out of the system; that is the raison d’être of his existence. When he raises the price of the commodity or service he produces, it takes a while for the suppliers of inputs — including labour — to become aware of the fact and, in turn, raise their own prices. This time-lag allows the capitalist to make some extra profit. As long as the rise in the price of the finished product keeps ahead of the consequent adjustment in input prices, the entrepreneur will joyfully continue to increase his output. A steady rise in the price level therefore facilitates capitalist growth. Those pinning faith on growth of this genre, it follows, cannot but approve of eine kleine inflation.
Therein lies the problem. Ever since liberalization was ushered in, the criterion of economic performance has been officially defined as growth in GDP; how the GDP gets distributed is of no consequence, nor is creation of employment considered as of any particular relevance. The concentration is, moreover, exclusively on growth in organized industry and services. In the accepted manner of looking at things, while agriculture may still be the source of livelihood for close to three-fifths of the nation, it contributes barely 20 per cent of the GDP. There is, accordingly, no need to pass sleepless nights over its prospects; industry and services will march forward on their own, grow at a rate at around, or even exceeding, 10 per cent per annum, and thereby ensure an overall rate of GDP growth of the order of 9 per cent. Amid the excitement generated by crude arithmetic of this kind, certain basic issues, though, tend to be ignored. It is inherent in the nature of technology that is increasingly being used in industry and services that a high rate of growth of output could still be accompanied by actually a net loss of employment.
Such a sort of development, it will be argued, cannot be helped. The current shapers of the nation’s destiny have made up their minds; they have entered into a commitment to the powers-that-be in Washington, DC. India will give a run for its money to China as far as the rate of growth of GDP is concerned; if, in the process of the fulfilment of this commitment, either inflation rears its head or employment falls off, one must grin and bear it.
Which is why this year’s Union budget is so short in its prescriptions for controlling inflation or for improving the state of agriculture. Cheaper doggie biscuits cannot go very far towards disciplining the demon of spiralling prices; the finance minister knows it. A substantial reduction in import duties across the board could have had a positive impact on the domestic price level. The authorities are however frozen with fear; such a measure may endanger the rate of growth of industrial production and thus adversely affect GDP growth.
Fighting the impending elections in Uttar Pradesh is, of course, a matter the ruling party can hardly brush aside. It will also be the time, in another two years, for the next Lok Sabha poll. To permit prices of items of essential consumption to rise to unconscionable levels will therefore be patently unwise. Clamping a ban on futures trading in farm commodities must have been decided upon taking account of these considerations. The finance minister’s heart was obviously not in enforcing such a measure since it is likely to put a curb on gushy profit-making by speculators; but he had to succumb to pressure applied by his political colleagues. That is, however, as far as the government is prepared to go. The rest of the onus for restraining inflation has been placed on two wishful thoughts: first, gentlemanly behaviour on the part of the profiteers; and second, blessings of the rain god. A good monsoon, the finance minister is confident, will calm down the commodity market.
Some other imponderables are left unsaid. Should the grand plan to set up so-called special economic zones go through, even on the basis of conservative estimates, a net loss of employment of 500,000 would eventuate along with a decline in foodgrain output to the extent of at least 3 million tons. Perhaps the long-term official strategy, who knows, is to phase out the country’s farm output, as well as liquidate altogether the farming population by arranging the wholesale import of agricultural products from the United States of America: plenty of foreign exchange is in the kitty.
The gumption displayed by those who preside over the nation’s proceedings is truly breathtaking: they will take care of GDP growth, riveting their attention on industry and services. As for checking inflation, the responsibility rests on the monsoon; if it does not behave, what could the government do' The authorities, in fact, could do a lot, lot more to save agriculture — and the plight of countrymen scarred by inflation — by launching, as the lingo goes, a ‘pro-active’ fiscal policy, which could partly redress the neglect, over the years, of public investment in agriculture. The total outlay under various heads for agriculture, including irrigation, in this year’s budget does not add up to more than Rs 20,000 crore. The biggest item on the expenditure side of the budget is neither agriculture nor education, health services or other social welfare measures. It is defence spending; the outlay on defence has gone up in the course of the past four years from Rs 60,000 crore to Rs 96,000 crore. Even if other concealed items in the garb of expenditure for ‘internal security’ are left out, this works out to a neat increase of around 60 per cent.
Such a hefty rise in defence expenditure would make the US administration feel both proud and happy about their latest nuclear ally. The armament merchants of the world and their agents too should be equally contented. The Ottavio Quattrocchis never really disappear; even when they are forced by circumstances to make themselves scarce for a while, their progeny will be there to avail themselves of the opportunities that budgets of the poor nations in Asia, Africa and Latin America open up for them.
Nota bene. In this serene picture, there is only one speck of doubt. While industry will soar on the wings of inflation, the growth of services will overwhelmingly depend on continuous expansion of outsourcing, especially in the US. It is to be fervently hoped that American domestic politics will not spoil the party.