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Inflation, Hot Money, and Sleaze Paralyze Indian Economy
Ramtanu Maitra7/13/2011 11:01:47 PM
The Indian economy is in trouble. Although the economy continues to show high GDP growth, there is a growing disparity between India's sea of poor people and the few at the top of the heap. Out-of-control inflation, caused by the inflow of billions of dollars in hot money, combined with poor productivity due to weak physical infrastructure has resulted in corruption of unimaginable proportions, which has eaten away the gains made earlier. Prime Minister Manmohan Singh, who heads a group of disparate political parties under the banner of the United Progressive Alliance, is busy keeping the coalition government in power by doing little to prevent further deterioration of the nation's economy.
On June 16, the Reserve Bank of India (RBI) raised its benchmark lending rates for the tenth time in 18 months, as a monetary measure to slow down the rampaging inflation monster, which has already greatly hurt the poor, and is now beginning to hit the middle class, which had benefitted in recent years from the GDP growth and wage rise. The earlier nine such monetary measures within the past 18-month period did not slow down inflation. It is inevitable that the high interest rates will attract more short-term hot money into the country, spurring a faster rate of inflation in the coming days.
India has earned the distinction of incurring the highest inflation of major emerging markets. On June 14, the Singh government said inflation had increased 9.1% in May, compared with a year earlier, a rate higher than expected. High inflation was first observed two years ago in the rise of food prices that affected India's poor the most. But since India's hundreds of millions of poor have little voice in directing New Delhi's economic policies, for the greater part of the last two years such inflation was pooh-poohed by Indian economists, accusing the growing army of the middle class of "over-consumption of food." Now, inflation has shown up everywhere, once again, proving the shortsightedness of those economists.
What this picture, which I elaborate below, underscores, is the inescapable truth that if a fundamental shift away from the monetarist system is not initiated in the United States, and soon, we are looking at the literal devastation of the largest population centers in the world, such as India and China. This is, in fact, the concern of all humanity - and must be stopped.
The Growing Anti-Poor Bias Unwilling to change course, and stubbornly defending the failed economic policy, New Delhi is still harping on India's high GDP growth rate. The New York Times reported on June 15, that Kaushik Basu, the government's chief economic advisor, said, in an interview on June 13, that inflation was a problem that all developing countries were facing. "If you look at emerging economies around the world," Basu said, "India's performance looks pretty run of the mill."
But, neither Basu nor others in the Singh government are interested in taking a good look at the damage done by their strictly money-obsessed policies. "The last two years have been a lost opportunity" for India's governing United Progressive Alliance party, Citigroup said this month in a research report.
This monetarist obsession has given rise to full blown inflation across the spectrum. The unprecedented price rise in basic food items is severely impacting hundreds of millions of Indians. Despite the shouting by the globalizers, investment bankers, and their followers within India, millions of Indian families live on a daily diet which consists of cereal - rice, or wheat flour, or both - some vegetables, including onion, and a variety of lentil, or other similar items. Lentils provide the only significant source of protein they have access to, since they cannot afford to buy other high-protein foods, and this includes a large number of people who are non-vegetarians.
The latest figures indicate food price inflation is at 9.13% for the week ended June 11, on top of costlier fruits, milk, onions, and high-protein items. This figure is based on the Wholesale Price Index (WPI); the consumers buying from the retail market pay significantly more.
During a recent visit to India, which was prior to the release of the June 11 inflation figure, I took note of prices of some of the items which the poor have to consume in order to stay alive. The prices made me wonder how they survive. The urban poor have been forced to resort to criminal activities in order to procure food money in a cash-loose town.
What I discovered is that the cheapest variety of rice now costs twice as much as it did four years ago; wheat flour has also doubled during the same period; onion prices went up three- to fourfold; potato prices doubled, as did the price of eggs. The price of lentils (called pulses in India) has gone through the roof, and the cheapest variety, called masoor, has gone up at least threefold.
Milk, an essential requirement in a country where milk is the most frequently consumed drink, now costs Rs.28 (about $0.65) a liter. Chicken costs close to Rs.120 (about $2.80) a pound. Really, there is no food item, including fruits and green vegetables, that is not selling at twice or more the price it sold three or four years before. Needless to say, cooking oil, an extremely expensive item, has gone beyond the reach of the poor.
Now, consider what almost 40% of Indians earn daily. These are the poor, and they earn, on average, about Rs.70 ($1.60) per day. With those earnings, a family of four is left with just rice or wheat, a little salt, and a piece of onion for its meals, or a single meal with lentils and vegetable. This is the state of affairs for a huge part of India that is rarely seen, since it shames the middle-class and the academics, and the state of existence of the poor is denied.
The callous neglect of the agricultural sector, where most of the poor reside, has also exposed them to the global speculators. For instance, the abominable productivity of pulses and oilseeds, two necessary items for the poor to survive, forces India to import these items in large volume from the international market.
Devastation of the Farmers A recent Reuters article, "India's food chain in deep change," said that since the mid-1990s, an estimated 150,000 small farmers have committed suicide nationwide, most of them over debts, according to a survey by the Center for Human Rights and Global Justice at New York University. Behind that chilling figure is the fact that nearly 100 million farmer families not only do not benefit from growth and high prices, but have become victims of the cannibalistic economic policy of the present Administration.
Despite the high food prices in the market, farmers are finding it ever more difficult to make ends meet. The introduction of high-yielding seed varieties and increased use of fertilizers and irrigation spawned the Green Revolution in the 1960s, which allowed India to become self-sufficient in grains. Over the years, however, agriculture innovation and efficiency have stalled due to the Singh government's absolute neglect. As a result, farmers are getting squeezed by rising costs and inefficient agronomy.
But, New Delhi continues to turn the proverbial blind eye to conditions in rural India, where hunger is endemic among the country's more than 500 million poor. James Lamont, writing for the Financial Times, July 1, 2011 last February, cited a Punjabi farmer: "A good farmer with a good piece of land can just about break even," but the small farmers can no longer do so. While Punjab has remained the breadbasket of India, throughout the region, small farmers are sinking under the weight of debt. In India's fast-growing economy, costs are rising for agricultural inputs such as fertilizer and transport.The water table has fallen dramatically, and the cost of irrigation has risen, as farmers use more powerful pumps, consuming more electricity. Despite the Prime Minister's avowed commitment to develop basic infrastructure, such as power and water, vast parts of rural areas have remained without electricity, and due to the non-implementation of a comprehensive water-management plan for the rural areas, many farmers have remained wholly dependent on monsoon rains for growing their crops. Farmers are bitter over the fact that the rural poor are subsidizing the urban classes in New Delhi, Mumbai, and other megacities. The farmers are also under pressure from the government to hold down food prices. By keeping food prices down while paying for increasing production costs, these farmers are becoming increasingly indebted, as the cost of borrowing rises precipitously. Lamont was told by the Punjabi farmers that borrowing costs are now upwards of 24%. They are forced to sell their land to pay debts. But in a state with little industry, most are trapped on the land with few alternative livelihoods. As a result, suicide
To be cont......
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