After nine years of economic reforms, the consensus appears now to be breaking down.
The Congress wants a roll back on subsidies and parties within the NDA alliance have also opposed the recent cuts in food and fertiliser subsidies. They have joined hands in wanting to stop privatisation. The concern for the poor is the cause for these developments.
The economic reforms were started by the Congress and were carried forward ever since by which ever party that came to power.
According to most western observers and eminent economists, the slow pace of the reforms has actually been a major problem. They have pointed out that the 'trickle down' which was promised by the reformers did not happen because the rate of growth of the economy was not fast enough nor did the benefits of reforms spread evenly through out the country. Poverty has actually increased in the last few years especially in the rural areas, despite the facade of prosperity in the metros. Faster economic growth would have led to a trickle down and it would have created more employment in the rural areas and the need to go on subsidising the poor and offering them below market price rice and wheat in ration shops would not have arisen. They would have had the purchasing power to buy foodgrains at market prices. But since the number of real poor is not decreasing, the need for continuing the subsidies is being felt by many political parties.
The finance minister, in the recent budget has been faced with a great dilemma: if he did not cut the subsidies, he would not be able to reduce the government's ballooning current expenditure. Subsidies still comprise 12 per cent of the government's current revenue receipts. Out of a total subsidy bill of budgeted Rs 23,837 crore, the biggest items are food and fertiliser subsidies. So he proceeded to cut the fertiliser and food subsidies. The well known Hanumantha Rao committee report also had recommended that urea prices be raised and the 'retention pricing scheme' in which urea production units are heavily subsidised to meet their operational costs, should be phased-out.
Mr Sinha took a step towards implementing the committee's findings. Raising the price of urea would gradually eliminate the retention price scheme that gave fertiliser production units an opportunity of 'gold plating' their costs --that is showing higher costs for obtaining higher subsidies, instead of improving efficiency that would lower costs. Yet the rise in the price of fertilisers is going to hurt farmers today because they rely heavily on urea as an important input.
That is why the Congress and others are protesting and calling the budget 'anti poor'. Similarly, the rise in the price of rice has been objected to because it will mean that the poor in states like Andhra will be faced with an increase in price rather than a decline -- something which they got accustomed to in the past. It will be a harsh measure for the poor below the poverty line.
Because even though the total ration may have been doubled for them but because of the steep price increase, they may not be able to afford it. Many have also pointed out that raising the price of food when the Food Corporation of India has surplus foodgrains in the godowns, is not justified. Besides, FCI's carrying food stocks will increase if foodgrains are not lifted.
Can reforms, without a safety net for the poor, ever work in a country with over 300 million people living below the poverty line and where governments are elected through a democratic process? Merely by liberalising trade and industry you do not benefit the poor. They get more and more alienated by disparities of wealth.
Specially now when the IT revolution is taking place and is creating unprecedented wealth in the hands of a few, there is bound to be more resentment coming from the poor. The inequalities will continue to rise if the government does not step in and invest more in creating rural employment and developing infrastructure in the countryside and spending more on education and health of the poor.
The Opposition parties thus are reiterating what has been the experience of many other countries which have gone for World Bank type of reforms in the past in which there is marginalisation of the poor. Over time the middle class gets the benefits on account of their basic education, skills and mobility but not the very poor.
Mr Sinha, however, can do little but to target a high rate of economic growth which is possible only if it raises government's expenditure on essential physical and social infrastructure. He can afford to do so only by reducing subsidies and by targeting the poor better.
Privatisation also is being opposed for fear of job loss. If reforms had led to more job creation, that fear would not have been there. But privatisation is becoming necessary because so many millions of rupees are being siphoned off from the government's coffers (current expenditure) to keep loss making units alive and the disinvestment process cannot succeed unless privatisation is started off.
Because people will not buy PSU shares unless they know that the government is keen on shutting down and selling off sick units. Again, unless retraining programmes are started by the government, the fear and discontent of workers will continue to rise. Hence the liberalisation process is at a cross-roads. The middle class has benefited. But the rest of India is still waiting to see any significant benefit.
