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DMK’s unending troubles
Bumper problems
Laudable, though late |
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Decline of communism
The tang on tongue
Reform food policy to contain prices
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DMK’s unending troubles
THE arrest of Kanimozhi, the high-profile daughter of DMK supremo M. Karunanidhi, after a special CBI court rejected her bail plea on Friday in the 2G spectrum allocation scam is yet another thunderbolt for the DMK after it was routed in the recent assembly elections. Herself a Rajya Sabha member, Kanimozhi was named as a co-conspirator in the 2G case along with former Telecom Minister A. Raja, who has already been behind bars for weeks. In these times of women’s equality it would have been odd for the court to accept the plea of her counsel Ram Jethmalani that consideration be shown to her because she is a woman. Judge O.P. Saini was absolutely right in contending that since most of the witnesses against Kanimozhi were employees of Kalaignar TV the possibility of these witnesses being influenced could not be discounted if she was left free. The case against Kanimozhi is that she was the ‘active brain’ behind the operations of Kalaignar TV which received Rs 200 crore from DB Realty which was in effect bribe for Unified Access Service licences, spectrum and other undue benefits. As a 20 per cent stakeholder in Kalaignar TV, Kanimozhi can hardly wash her hands off the largesse that the company received. Her proximity to Raja, who presided over the 2G allocations, has been duly documented by the CBI. Recorded telephonic conversations show that Kanimozhi had pushed for the reappointment of A. Raja as Telecom Minister in 2009 when the latter was already under a cloud. In such circumstances, it would have been a travesty of justice for Kanimozhi to have been spared The arrest of Kanimozhi would indeed send out the right signals that no one is above law. It is no secret that many in the DMK and in the Karunanidhi clan are angry with the Congress for not having come to Kanimozhi’s rescue. Yet, both the DMK and the Congress know that they cannot but stay on as alliance partners—the Congress needs the DMK’s 18 MPs to keep its coalition afloat at the Centre while the DMK is up against a vindictive Jayalalithaa in power in the state and needs Congress protection against excesses. How long this marriage of convenience would last, however, is anybody’s guess with political machinations in full flow.
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Bumper problems
A
bumper wheat crop should normally be a matter of joy. However, if government godowns already overflow with grain and large quantities rot in the open, problems of plenty arise. In normal market conditions a glut of any commodity brings down its prices and turns growers to more rewarding crops. In Punjab and Haryana farmers are assured minimum support prices and the procurement agencies are bound to lift the produce. That is one reason they stick to wheat and rice even when there is a huge surplus. Low global prices make exports unviable. Systemic inefficiencies raise the cost of growing, storing and distributing food for the government. The pile-up can be blamed partly on the government’s folly. It was sleeping over massive buffer stocks last year when prices spiked and hurt the poor. In a country where surpluses co-exist with large-scale malnutrition and near-starvation conditions, something is seriously wrong at the top. The Supreme Court’s bursts of anger at food mismanagement is understandable. Last year the court pulled up the government for food wastage. A few days ago it ordered the government to rush five million tonnes of food grains for distribution in the 150 most poverty-stricken districts in the country. Such interventions are allright but a sensible long-term policy is needed. The government tries to balance farmers’ interest with that of consumers. Prices do not fall despite surpluses because the MSPs are regularly raised to compensate farmers, whose input costs keep rising. The problem can be solved partly if experts/government officials/farm universities guide farmers to go beyond rice and wheat and also look at crops whose prices are likely to stay high. Prices, both domestic and global, can be known in advance through a well-regulated system of futures trading. The marketing of such crops has to be assured. No doubt, there is need for building more silos, shifting to mechanised handling of grains and encouraging food processing industries, but private investment is still not adequately flowing into these areas.
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Laudable, though late
Illegal
mining of minor minerals (sand and gravel) had been going on in and around Mohali for some time till The Tribune, on Thursday last, highlighted the issue by publishing a report on the subject. Subsequently, the Mohali district administration has taken action and registered a number of first information reports against some of those involved in the illegal activity. It is indeed surprising that the administration had not taken notice of this large-scale loot of natural resources, which involved at least 137 persons against whom the police has registered FIRs. Large financial gains, along with a system that did not, till now, interfere with these illegal activities, lend credence to the charges of political patronage of those who were engaged in illegal mining. It is also a matter of concern that the mining was not only being conducted in an ecologically sensitive zone but also in areas where it is specifically banned, i.e., on the beds of rivulets, on private farmland and in forest areas. Illegal sand mining is an old one, but with depleting resources and increasing demand due to construction activities, it has become more lucrative. The delay in holding a regular auction of Punjab’s 366 quarry sites has further worsened matters. Demand for sand and gravel has been increasing, and various departments charged with checking this illegal activity, especially the Forest Department and the State Industries Department, have not been able to put a stop to illegal mining. Delay in contractors getting their environment impact assessment reports is also an irritant. It is obvious that the exchequer is losing money because auctions have not been done. The environment is being damaged because of illegal mining in sensitive ecological zones. People living in villages near where such quarrying is going on have been protesting against it. Yet, illegal quarrying was, till recently, going on in the periphery of the state capital, just as it is carrying on in the rest of the state. Now that the Mohali administration has identified culprits and registered FIRs against them, it is only natural to expect action against these individuals. Sorting the problem of illegal mining will take political and administrative will, which has not been demonstrated so far.
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Life is not always fair. Sometimes you can get a splinter even sliding down a rainbow. — Terri Guillemets
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Decline of communism INDIA’S biggest story after the latest state elections is the decimation of communism. Most believe it is a good riddance of an ideology that has outlived its utility. In fact, it got buried under the debris when the Soviet Union collapsed in 1990, after losing the Cold War. Yet, West Bengal and Kerala, more so the first, were the only two states which defiantly stuck to the Stalin philosophy and even put up his life-size photo at the politburo. The rout in West Bengal was humiliating, the party securing only 63 seats in the 294-member House. Kerala had a better showing winning 68 out of 140 seats, primarily due to outgoing Chief Minister V.S. Achuthanandan’s clean image, without the humbug of ideology. However, the advance of capitalism or consumerism without any challenge has not made the world better. While Russia has settled down to a Western pattern, the communists in India are riding a high horse. The jaded ideology is still sacrosanct for them. They do not see that their agenda has been appropriated by the Maoists, who have also used the gun and coercion to spread. China’s version of communism is a free economy under the strict discipline of the party and the army. The classical type of communism does not sell any more. The middle class has In any case, West Bengal’s Left Front government was not the setup which could have retrieved the ideology because the leaders were arrogant, the ministers nonchalant and the cadres law unto themselves. The Communist Party of India (Marxists), which either misgoverned or non-governed the state for 34 years, had a cockeyed idea of ideology that by flaunting the red flag or mouthing slogans they could win popular support. Little did the CPM realise that there was disconnect between it and the people. The party’s debacle in the Lok Sabha elections should have made it read the writing on the wall. In Kerala, something worse is emerging. Communalism is replacing the remnants of communist ideology. Hindus and Christians have voted for the Congress, and Muslims for the victorious United Democratic Front. Muslims won 20 seats out of the 24 they contested. For the first time, the state is in the throes of religious fervour, although the BJP’s Hindutva forces have been defeated roundly. I do not think that the communists can stage a comeback with the same old Leninist-Stalinist approach. They have to return to the grassroots and expand their base. The Left has to keep in mind that any ideology without morality will not go very far in India, inspired by Mahatma Gandhi. Mamata Banerjee of the Trinamool Congress, now West Bengal’s Chief Minister — she won 226 seats — realised the moral aspect. A maverick as she is, she can wreck a system but may find it hard to overhaul. The administrators, the police and other government agencies have to be rejuvenated with passion and dedication to serve the people, not to be at the beck and call of others like commissars in the Left government. Switching over loyalty is the bane of civil service. But it can be awakened to the ethical considerations inherent in public behaviour. At present, they have become generally dim. How to revive the dividing line between right and wrong, moral and immoral that has got erased is the challenge. This is not only for Mamata but also for Jayalalithaa who has smashed the family-cum-government apparatus in Tamil Nadu. By securing 203 seats in the 234-member House, she has proved that her victory is not negative but positive. But she has begun on a wrong note. She appears to be making up with the ruling Congress. When the case of “unaccounted assets” is pending against her, the stance of the Central Bureau of Investigation (CBI), which is under New Delhi, is crucial. How will she cope with that? A telephone call from Congress president Sonia Gandhi within 24 hours of Jayalalithaa’s winning elections says it all. Yet she must keep in mind that the people in Tamil Nadu have trounced the Congress and reduced its tally from 34 to five. Her election plank to eliminate corruption should be on top of the agenda. In fact, the Dravida Munnettra Kazhagam (DMK) would not have been routed if it had not to face the fallout of the 2G spectrum scam. The problem that the Manmohan Singh government faces is that the DMK has 19 seats in the Lok Sabha. However, Jayalalithaa’s 11 will make up the deficit to some extent. At some stage, either the Congress will dump the DMK or the latter would withdraw its support. The Congress victory in Assam was expected. Once state Chief Minister Tarun Gogoi brought the United Liberation Front of Asom (ULFA) leadership to Guwahati for talks, it was clear that his eyes were fixed on the state assembly election. The ULFA still has an emotional appeal in Assam. The Congress won at the polls last time with the help of Bangladeshis who had been registered as voters. The Chief Minister left them high and dry this time. And his victory pushed into the background the grave charges of corruption against his government. Before long, both forces will catch up. It would be, however, heartening if something tangible agreement emerges from the talks to reconcile the aspirations of the ULFA with Assam’s identity within the Constitution of India. The Congress should learn a lesson: political problems need political solutions and not military ones. The large presence of the armed forces in the Northeast, operating under the outmoded Armed Forces (Unlawful Activities) Act, has alienated the people, not calmed them down. In due course, when the election dust settles down, all the three major parties — the Congress, the BJP and the communists — will realise that they are losing ground. Regional parties are beginning to occupy the space which an all-India party should be commanding. This means a coalition government at the Centre for a long time to come. There is nothing wrong with it if the federal structure is respected and a consensus of opinion sought. But the manner in which the major parties growl at one another holds little hope. They have defamed the system so much that their own credibility is zero. One thing that the nation must keep in mind is that morality has been squeezed out of Indian politics. The polity has to go through a series of coalitions at the Centre and even in the states. There will be shocking bargains and business-dictated combinations. People would be mute spectators. They will have to wait for a third alternative before they reach the sunny
ground.
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The tang on tongue AS soon as you take it inside your mouth, it bursts. There is far more juice than you would assume the hollow of a well-bloomed puri could contain. You grin and try not to allow even a few drops of that tasty ‘pani’ go waste. To ensure that, you place your dish below your mouth in case it does. Does it require an express mention that what’s being relished is the undoubted empress of the chaat world, the redoubtable golgappa? For a dyed-in-the-wool golgappa admirer like me, it is an absolute pleasure to crunch this small world of incredible refreshment. There is no street food which is more street food than golgappa. If Barbara Cartland had had an opportunity to taste this marvel, she would have surely written a romantic novel on it. Since she did not, I decided to write on it. ‘Bhaiya jara ek plate golgappa dena’, is never an unsafe bet. The little sphere, a few chunks of potatoes, chickpeas floating in the hot-sweet water and that craving to have it as soon as the vendor puts it on the plate you are asked to hold. The khatta generally arrests your mouth first and makes you all the more eager for the meetha to hit the exact tastebuds. It is the effortless feat in the cosmos to think no more of the sorrows of life, just feel the tangy taste that holds you in a spell and you don’t even realise when you gobbled the first golgappa and you stand holding your plate ardently for the next one. Golgappa, notwithstanding its huge following, barely stirs up any scholarly feeling to make a fuss about its origin. Hallmarked as pani puri, aka. gup chup, pakodi, puchka, bataasha, pani ke bataashe or a quite Americanised pseudonym water balls, they are undisputed preference when it comes to careless evening walks or after-shopping relief. So what if people have doubts about its hygiene? I leave behind all the concerns. My bond with these snack balls makes me feel that we, too, are like these hollow spheres filled with aeons of learning, responsibilities and hardships that are immersed into the era we exist in, which is at times sweet and at times sour. As we cannot savour the sweet golgappa without having the tangy one, likewise we can’t relish the wonderful occasions escaping the grim ones. ‘Bhaiya thora pani dena please, teekha-meetha
mix.’
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Reform food policy to contain prices
Governments in Asia need to address supply-side causes of food price increases by raising farm productivity. An annual UN study called “Economic and Social Survey of Asia and the Pacific 2011” suggests South-South cooperation to make agriculture more resilient. Excerpts:
Spikes
in food and fuel prices in 2008 caused inflation rates to increase in most Asian countries. With the onset of the global financial crisis in 2008-09, however, price pressures subsided rapidly across the region except in South Asia. Indeed, India and Pakistan are experiencing double-digit inflation driven mainly by food. Given the high incidence of poverty in the region, higher food and overall inflation rates disproportionately affect the poor. Moreover, because of the large share of food in the average household consumption budget, a sustained rise in food prices tends to put upward pressure on wages and, with a time lag, on general inflation. An analytical and empirical examination of the causative factors of inflation can be divided broadly into two categories: demand and supply. The analysis shows that demand components have tended to fluctuate with output levels and growth rates but they have not been major independent sources of price shocks. The major sources of price volatility have been from the supply side. Although longer-run aggregate supply in South Asian countries is elastic given youthful populations in transition to more productive occupations, it is subject to frequent negative supply shocks. Demand contractions tend to amplify these shocks. South Asian economies are supply constrained in the sense that while output is largely determined by demand, inefficiencies on the supply side tend to perpetuate inflation by creating shortages of goods and services from time to time.
Food price-wage cycle With a supply shock, the aggregate supply curve in the figure shifts upward, leading to higher inflation. If, in response, a demand contraction shifts the aggregate demand curve downward, this reduces inflation only marginally and at a high cost in terms of output lost. Therefore, the use of restrictive demand-side policies to tackle inflation when its causes are primarily on the supply side may not help much in reducing overall inflationary pressures. Both formal econometric tests and analysis of shock episodes based on Indian data support this analysis. In South Asia the food price-wage cycle is an important mechanism for propagating price shocks and creating inflationary expectations in response to a supply shock, which acts as an inflation trigger. The political economy of farm price support, consumption subsidies and wage support, with built-in waste, inefficiencies and corruption, contributes to chronic cost-push pressures. Poor targeting of consumption subsidies implies nominal wages rising with a time lag, pushing up costs and generating second-round inflationary pressures from a temporary supply shock. The political economy of the sub-region informally indexes wages with food price inflation. If the rise in average wages exceeds that of agricultural productivity, however, prices of food will inevitably go up, propagating more generalised inflation. Populist policies that provide short-term subsidies but raise indirect costs also contribute to cost-push pressures. For example, neglected infrastructure and poor public services increase overall costs in the economy. The power shortages from which most South Asian countries suffer are a case in point. Virtually all countries in the sub-region have shifted to more flexible exchange rates that are managed to varying degrees. Bangladesh and Sri Lanka avoided significant exchange rate depreciation during the global crisis and their inflation rates dropped into the low single digits in 2009. Elsewhere, however, food inflation has remained high. These differential outcomes indicate a more strategic use of exchange rates in anti-inflation policy. Once the nature and structure of shocks and elasticities of aggregate demand and supply are identified, certain policy implications follow: a shift down the supply curve in response to a supply shock; avoidance of an excessively large demand contraction; and the identification and removal of propagation mechanisms. Above all, a hasty tightening of monetary policy will, in all likelihood, involve a large output cost with little effect on inflation.
Policy options Mild but early monetary tightening after a supply shock can prevent inflationary wage expectations from becoming entrenched and further pushing up the supply curve. Given this, a first-round price increase from a supply shock might be allowed, but a second-round wage-price increase should be prevented inasmuch as possible. A nominal appreciation of the exchange rate can serve to push down the supply curve. Short-term fiscal policies to push down the supply curve include tax and tariff cuts and freer imports. These policies can also lower inflationary expectations. Trade policy works best for individual country shocks that are not globally correlated. Nimble private trade can defeat speculative hoarders. It should be stressed that short-run policies are likely to work only for a temporary shock. A long-lasting shock requires a longer-term productivity response. Food prices play a central role in propagation mechanisms since they raise nominal wages with a time lag. A fundamental reason for chronic supply-side inflation is that real wages tend to exceed labour productivity. The solution is to raise labour productivity, especially in agriculture. Following liberalisation, as farm produce has become part of the wider traded economy, global prices have begun to affect domestic food prices. In such a situation, the exchange rate can affect food prices and overall inflation. Conflict between a depreciated exchange rate to encourage exports and an appreciated exchange rate to increase real wages can contribute to a wage-price cycle, with depreciation raising nominal wages and prices and leading to real appreciation. Attempts to dampen exchange rate appreciation sustain the cycle. Only improvements in productivity can close the demand-supply gap and break this inflation propagation mechanism. Capital inflows will tend to appreciate the exchange rate, thus satisfying the wage target, and finance the accompanying rise in imports. But a widening current account deficit is risky even though it might allow gross investment to exceed domestic savings. It would be preferable to set a sustainable current account deficit and meet it by raising productivity in the economy. Rising productivity increases the level of capital inflows that can be safely absorbed at a reasonable current account deficit. In this regard, better governance and improved delivery of public services improve productivity in the economy and, within the corpus of governance, reform of food policy is especially urgent given the economy-wide impact of food inflation.
Governance in food policy Developing East Asian countries with large food components in household budgets have successfully moderated food inflation by focusing on raising agricultural productivity. India moved early to agricultural subsidies together with implicit taxes generated through the imposition of restrictions on different activities within the agricultural sector, including public distribution schemes. Procurement prices were raised with the rise in border prices but did not fall with them, thus imparting generalised cost-push pressures in the economy and creating unnecessarily large food stocks in costly and dysfunctional food support programmes. If the procurement price becomes a true support price, food stocks should come down in a bad agricultural season when market prices rise and go up as market prices fall in a good year. Through such a policy, farmers would receive some assured income support even as a removal of restrictions on the movement and marketing of agricultural goods and better infrastructure allowed them to diversify their crops. With lower average stocks, the public distribution scheme should focus more on remote, inaccessible areas. Food coupons or cash transfers directed primarily to female members of households can provide food security to the poor while allowing them to diversify their food consumption basket. Since the income elasticity of demand for food is still high, more moderate nominal price increases could serve to incentivize higher agricultural output and income growth. Political jostling when deciding on food policy, in general, and procurement prices, in particular, ignores their negative long-term effects. Poor coordination means that multiple agencies do not factor in each other's costs or consider the wider picture. Until thorough food policy reform occurs, a possible nominal appreciation of the nominal exchange rate can prevent a sharp rise in border prices from triggering multiple interest group actions resulting in complex domestic distortions.
Managing supply shocks Emerging markets must find non-distortionary ways to respond to spikes in food and commodity prices. Large global spikes imply distortions beyond supply shocks, which should be prevented. Policies that are driving up prices across all asset categories such as excessive liquidity creation in some of the developed countries that is directing large funds into commodities, might be re-examined at a sub-regional or regional level and its impact modified through some form of collective action. Futures markets help output planning through better information on future demand and supply and the hedging of risk, but any overreaction implies that prices in financial markets do not reflect their real determinants. The answer is not to ban such markets but to improve their working and regulation. Progressive convergence towards common global regulatory standards can prevent arbitrage. Participation by more diverse groups in commodity trading could be encouraged within a framework of rules that discourage market abuses and thereby limit volatility.
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