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Resource centre on India's rural distress
 
 

UPA-2’s costly mistake: failure to curb rising prices-Asit Ranjan Mishra
-Live Mint
 

A key reason for the surge in anti-incumbency faced by UPA has been its failure to curb inflationary pressures

New Delhi: A key reason for the surge in anti-incumbency faced by the Congress-led United Progressive Alliance (UPA) has been its failure to curb inflationary pressures for most of the regime's second tenure.

While inflation based on wholesale prices averaged 6.1% during UPA-1 (2004-2009), it was a percentage point higher at 7.1% in UPA-2 (2009-14). In the case of food inflation, the acceleration has been more pronounced, rising from 6.74% to 12.2% over the same period.

Pronab Sen, chairman of the National Statistical Commission, said the main reason for mounting inflation was the government's failure to roll back the 2008 fiscal stimulus in time. This, Sen argued, had led to the economy overheating and prices firming up even as the UPA failed to balance the food economy.

"It is one thing to raise minimum support prices (MSP) for foodgrains, but you need to release the food stock into the market to control price rise, which was unfortunately not done."

The UPA increased the MSP for wheat by a record 120% from Rs.640 per quintal in 2004-05 to Rs.1,400 for 2014-15, according to agriculture ministry data. Similarly, the MSP for rice was increased by 130% from Rs.560 per quintal in 2004-05 to Rs.1,310 in 2013-14. However, even while cereal inflation averaged 13.34% during 2013-14, the Food Corporation of India (FCI) continued to hold 31.8 million tonnes of rice and wheat stocks in April.

 

This, predictably, caused disenchantment among the rural poor, and this was offset by government spending on pro-poor policies and entitlement programmes of the UPA.
 
Phul Singh, a farmer in Muzaffarnagar, Uttar Pradesh, said that though the government has taken steps to help farmers, persistent inflation, particularly of food articles, has squeezed household budgets. Farmers in the area complained that although the government hiked the MSP of sugar cane, mill owners have not paid up on time.

 

What may also prove damaging for the Congress party is that consumer price inflation has been accelerating faster in rural India than urban areas since November last year. In March, the most recent month for which data is available, retail inflation in rural India stood at 8.89%, compared to 7.51% in urban areas.

 

Traditionally, the Congress has outperformed its principal rival, the Bharatiya Janata Party (BJP), in rural India.
 
Last month, a survey conducted by the Centre for the Study of Developing Societies (CSDS) for the Bharat Krishak Samaj, a farmers' association, said one-third of farming households, a key electoral constituency, are likely to vote for the BJP in the general election. About 30% of 5,350 farmer households surveyed across 18 states preferred the BJP, compared with 17% for the Congress.
 
Agriculture contributed 13.91% to India's gross domestic product in 2013-14, according to advance estimates provided by the ministry of statistics. The sector grew 4.6% in the same period and employs 49% of the country's population.

 

Sociologist Shiv Visvanathan said the high level of inflation has not only impacted the poor badly, it has also drastically affected the middle class. "Due to a lot of unemployment and retrenchment of the middle class, a lot of things became inaccessible for them. What inflation did was create a divide between the super rich and the middle class. So the divide that inflation created is not only economically costly, but sociologically real," he added.

S.L. Rao, chairman of the Bangalore-based Institute for Social and Economic Change, said high retail inflation will impact the UPA in urban areas as well. This is because unlike rural India-protected by heavy social-sector spending and a rise in real wages-urban India has no safety nets. At the same time, the failure to generate sufficient jobs meant that family budgets had come under even more pressure.

The BJP has sought to make political capital of the UPA's failure to contain inflationary pressures. Its solution, according to the party manifesto, is to set up special courts to stop hoarding and black marketing, create a price stabilization fund, and make FCI more efficient by unbundling its operations into procurement, storage and distribution. It has also proposed a single "National Agriculture Market" and promoting and supporting area-specific crops and vegetables linked to the food habits of locals.

Sen said that while the idea of price stabilization fund is not new and has even been effective for some products such as rubber and tobacco, it is basically an income stabilization fund to safeguard farmers rather than a tool to protect consumers from price rise.

 

The Congress party, in its manifesto, mindful of not making tall promises to curb inflation given its track record, gives only a general assurance of "firm action" to control inflation in a difficult global economic scenario.
 
When the Congress party lost badly in the state assembly elections last year in Rajasthan, Delhi, Chhattisgarh and Madhya Pradesh, high inflation was blamed as a key factor. This prompted Congress vice-president Rahul Gandhi to order its remaining 12 state governments to remove fruits and vegetables from the purview of the Agricultural Produce Marketing Committee Act, thus doing away with the middlemen who buy farm products from farmers and sell them to bulk buyers, such as organized retail firms.

 

Rao said that while the middleman should be done away for farm produce, the government needs to encourage creation of cold storage facilities and improve agricultural marketing for curbing an artificial price rise.