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Friday , March 26 , 2010
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- Topsy-turvy values of believers in the free market

A democratic society should have space for everyone. Including for those subscribing to the most otiose beliefs. Beliefs are a matter of faith, it is pointless to try to persuade persons to discard the beliefs they clutch at by mounting arguments based on logical principles. For faith defies logic. In such circumstances, to live and let live may well be reckoned as a good practical way of solving the problem.

Difficulties, however, arise when fundamentalists flaunting a belief happen to occupy positions of administrative responsibility and attempt to shape official policy in conformity with their cherished doctrine. The public domain becomes their laboratory to turn articles of faith into living reality. The proceedings then directly affect life and death for the community.

The ministry of finance in New Delhi is currently a monastery where votaries of the free market have congregated in large numbers. Asserting the sovereignty of the market is to them of transcendental importance. They have read — and sometimes written — textbook after textbook which aver that in case no interference takes place with the market process, and the forces of demand and supply are allowed to function freely, the price that equilibrates supply and demand will be the most satisfying from the point of view of sellers as well as buyers. Furthermore, theists believe in a narrow definition of what constitutes interference with the market. In the real world, the functioning of the market is vitiated by the presence of large groups of monopolists or oligopolists who practise restrictive output and thereby manipulate prices and boost profit. The market process is similarly affected by activities of dealers who withhold stocks and thereby create artificial scarcity. The pitch of the market can also be queered by speculation in commodity futures in the share market. Such factors which distort the operation of market forces are, however, considered to be of no significance to the votaries of the free market. In their judgment, imperfections of these kinds are normal features of market activities and it would be unfair to question their legitimacy; it should rather be left to the market process itself to cope with such hiccups in day-to-day transactions. Interference on the part of the State, though, is an altogether different kettle of fish and must not be tolerated on any account. The State, the cherished theology says, has no business to interfere with the market process; to do so is tantamount to an infringement of individual freedom which a democratic society should never put up with. One example of such interference, in the view of the theists, is the public distribution system whereby the government arranges to supply essential commodities, including foodgrains, to certain sections of the population at subsidized prices, that is, at prices lower than those prevailing in the market, in times of distress.

This, according to free market theology, is an affront, for, by selling commodities at prices lower than those ruling in the State hurts the interests of producers and sellers; it deprives them of profits they could have chalked up otherwise. It has an adverse effect on incentives too: producers and traders feel discouraged from making plans to produce the commodities concerned or organizing their trade; as a result, both production and supplies are bound to decline in future.

This year’s Economic Survey, produced by savants in the ministry of finance, is greatly exercised over the issue. In times of scarcity, when market prices of essential commodities soar, the poor and middle classes are subjected to intense suffering as they lack the purchasing power to buy their necessities in the market. When such a situation arose in India, during the Second World War, the authorities felt compelled to introduce public distribution of foodgrains and a number of other key commodities. In the decades following Independence, the public distribution system was progressively strengthened with the establishment of the Food Corporation of India and similar other institutions. Economic liberalization, however, brought about a sea change in official attitude; supplies of essential goods via public distribution have shrunk and shrunk. Spiralling prices of foodgrains and sugar this year have, however, once more generated a demand for organizing the public distribution system in an effective manner all over the country in order to supply foodgrains at subsidized prices to the poor and lower middle classes. Legislation supposed to ensure the right to food to every citizen is also reported to be on the anvil. The forum of the Economic Survey has been availed of by free market ideologues to express their concern at such ‘non-liberal’ proposals. The market process, in their view, must, under no circumstances, be tampered with. Instead, to alleviate the hardship of the poorer classes at the time of runaway inflation, the authorities, the Survey suggests, might think of issuing food coupons to citizens experiencing economic difficulties. The market process will remain unharmed, sellers and producers will be at liberty to seek and receive prices that the market determines, the poor may be given coupons of a certain value with which they can proceed to the market and buy the food they need. This procedure will do no violence to the free operations of the market and yet citizens who lack purchasing power will not have to face disaster: food coupons will come to their rescue. There will, therefore, be no occasion for any public distribution. The needy will be accorded their right to food via food coupons to the shopkeepers and obtain the food: it is as straightforward as that.

Is it really that straightforward? Will distribution of food coupons constitute a foolproof, flawless arrangement? Such coupons, it is reasonable to assume, will specify a value in rupee terms. The holder of a coupon will be allowed the quantity of foodgrains which its face value covers. Suppose the predatory forces who create mayhem in the market are not put on any leash, they are even allowed easy credit from the banks, and the government benignly looks upon the unfolding phenomenon. Prices can, therefore, skyrocket between the time the food coupon is issued and the time it is presented to the dealer’s shop. When the coupon was issued, it was intended to cover the price of, say, four kilograms of rice; by the time it is presented for redemption, prices perhaps have doubled, so that it would now fetch only two kgs. The market has remained sovereign but the household which was issued the coupon will have to make do with only half the grain it needed for survival. Would the authors of the Economic Survey kindly explain how this household is to get out of the resulting predicament? Is maintenance of the immaculateness of the market process a greater priority than avoiding death from starvation of millions of our countrymen?

Let us, however, be charitable and agree to go along with the proposition that the authorities are not altogether bereft of the milk of human kindness; should food prices keep soaring in the market, they would adjust upwards the face value of the coupon. If in the first instance the household was issued a coupon worth Rs 200, the following week its face value would be raised to, say, Rs 300, next month to Rs 600, the following month to Rs 1,000 and so on until the danse macabre of inflation comes to a surcease — of course, assuming it does. Does that not in effect mean that the government would be subsidizing the sellers and traders to an unlimited extent out of respect for the sovereign whim of the market?

Substituting public distribution by a coupon system thus seemingly leads to either of two contingencies. In one instance, coupons are not adjusted for a galloping rise in market prices so that the hapless consumers perish. In the other contingency, where the value of the coupon is continuously adjusted upward to cope with rising prices, the government subsidizes, in an unashamedly open manner, racketeering traders. The new dictum evidently is as follows: subsidy to the weaker sections through the public distribution system is sin, subsidizing profiteering buccaneers in the marketplace is next to godliness?

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