Eminent economist and Vice-Chairman of Kerala State Planning Board Prabhat Patnaik has said that expectations that the international financial system is “now stabilising is likely to prove illusory.”
He was speaking at a seminar on the global economic crisis, organised by the Suryanarayana Rao Social and Educational Trust, in Bangalore on Sunday to commemorate the 85th birth anniversary of trade union leader and freedom fighter S. Suryanarayana Rao.
Prof. Patnaik said although governments all over the world had attempted to provide support to their beleaguered financial systems, “their real economy remains mired in a deep recession.” He said that even if the global economy recovered it was likely to be accompanied by a sharp increase in the prices of essential commodities such as cereals and petroleum products. He pointed out that speculative forces controlled the marketfor these commodities.
Prof. Patnaik warned that the sharp increase in prices of cereals and agricultural commodities might lay the basis for the entry of multinational agri-business corporations into developing markets. This may result in small peasants being thrown off their land. “You do not have to kill peasants to keep inflation down,” he remarked.
Prof. Patnaik suggested that focusing Government expenditure in areas that resulted in the expansion of food output may not prove inflationary. Other measures that would indirectly help small peasants — in areas such health and education — would also enable them to increase their productivity. This, he said, would ensure that Government expenditure did not result in inflation.
Prof. Patnaik said speculative activity had always played a major role in the modern free market capitalist economy. “Speculators”, he argued, “are not interested in permanent investments, they are only interested in making capital gains.”
However, speculative activity, especially in financial assets, had an impact on the real economy. “This results in employment levels in the economy being dependent on the whims of speculative investors.” Prof. Patnaik said the “obsession with fiscal deficits” is a result of the clout exercised by financial interests. “Why does this section oppose deficits even if they result in the expansion of output and employment?” he asked. He explained that these sections opposed higher deficits because they resulted in expansion in the role of the State and thus “undermine the social legitimacy of the capitalist system.”
R.C. Purohit, former president, Federation of Karnataka Chambers of Commerce and Industry (FKCCI), said that speculative activity in futures trading had an impact on the actual prices of foodgrains in India. Although foodgrain stocks with the Government had increased by 16 million tonnes in the last year, it had had no effect on curbing inflation, he said.
CITU secretary V.J.K. Nair, presided over the meeting.