Sir, before we allow politics to derail the real focus on this issue, it is important to understand the real reasons for price rise and where we are as an economy.
Sir, the situation with the economy and the perilous fiscal health of the government is - more than anything else - driving this phenomenon of unrelenting inflation and price rise that is, in turn, making the lives of poor and middle class intolerable and adding miseries to the already difficult standards of living.
Sir, the economic situation we face today is most challenging. There is no avoiding this fact. In the reply to the President's Address, I referred to our economy as being on a fiscal precipice and left hanging there only because of some adept fiddling with numbers.
Sir, we must understand the real story of inflation. Inflation and price rise has been on the up for almost 24 successive quarters, accompanied by GDP declines for the last 12 quarters. While inflation based on wholesale prices averaged 6.1 per cent during UPA-1, it was a percentage higher at 7.1 per cent in UPA-2. In the case of food inflation, the acceleration has been more pronounced, from six per cent to almost 12.2 per cent over the same period. And throughout this period, various functionaries of the government would famously predict an imminent inflation moderation, to be proved wrong again and again. So, to the critics of this government, I would humbly point out that the number of promises made and broken by the previous government on this issue are far too many to enumerate and describe, and I would not want to embarrass them by quoting any or all of them.
Sir, the problems for this trend of price rise are structural issues with our economy that have been created over the last four to five years. The economy has been stuck in a low-growth and high-inflation mode for several years now causing many connected problems. Most of the reasons for this situation can be attributed to the out-of-control profligacy that has been unmatched in its size and scope over the last few years.
Sir, even to many who are expert economists - and I am not one of them; I am not an expert economist - the problem has always been one of supply-side constraints. This has been known for several years, but with hardly any real effort to solve it, as can be seen by lakhs of crores of projects that have been lying blocked over several years. The Chairman of the National Statistical Commission said, the main reason for mounting inflation was the then government's failure to roll back the 2008 fiscal stimulus in time. This led to the economy overheating and prices firming up even as the government failed to balance the food economy. The Economic Survey by the then chief economic advisor, who was also the Prime Minister's Economic Advisor and now the Reserve Bank of India Governor, clearly pointed out the mistakes in the government's stimulus policy in 2008. The easy strategy of creating more consumer demand, rather than equally driving investments to bridge the supply-gap mismatch, had further accentuated the gaps that had been created by the easier economic strategy of fuelling a consumption economy without tackling the more difficult and hard work required, regulatory and policy issues required, for a sustainable investment-based economy.
Sir, there is no alternative to bringing fiscal responsibility and a value for money culture back into the government. The current model of borrowing almost Rs 50,000 crore a month is unsustainable and is placing liabilities on our future generations' heads. Public spending is notoriously leaky, fosters corruption, and worst, only a small percentage of those who worked for the targets are receiving this spending. Fundamental reforms are required in this area and are long overdue. A new approach to government spending is necessary. Only then can government borrowing be moderated. To add to this, poor regulation of commodity exchanges and poor enforcement of laws against speculators is another reason why prices are being fixed.
Sir, deep structural reforms are required in the agricultural and food economy. Apart from the ideas that are already with the government, that of setting up special courts to stop hoarding, creating a price stabilisation fund, making the Food Corporation of India more efficient by unbundling its operations, creating a National Agriculture Market and creating a concept of farmers' markets where farmers can sell directly to consumers are required.
Sir, as you can see from what I just described, the structural imbalances and problems created in our economy are deep and significant. These will take time to unwind and with reforms is needed a more effective economic strategy, a strategy of smarter, more effective government spending to replace the profligacy of the last 10 years, a focus on consumers and the poor, rather than business and friends and crony capitalists. Time is required for this government to get the economy back in shape and implement these required reforms.
Sir, I end with this one suggestion for the government - you must reach out to the people and communicate the reality to them. Make the rationale and reasons for the difficult decisions that are being imposed on people known transparently. As my friend Derek [O'Brien] has said and my senior colleague Sitaram [Yechury] has said on repeated occasions, it would be difficult for people to blandly accept that PSUs and railways are losing money, and so people must accept hardship. This Economic Survey and the Budget must make it clear to the people the extent of economic problems we are in and the fiscal legacy that has been inherited by this new government. If people are to bear hardship, they must know the reasons and for how long.
Speech by independent Member of the Rajya Sabha, Rajeev Chandrasekhar, during the debate on price rise in the Rajya Sabha, July 7, 2014
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