‘Price rise inevitable' – adding salt to the wounds

A comparison of the consumer price index of the G-20 group of countries in December 2009 shows that India has the highest annual consumer price inflation.

Updated - December 04, 2021 11:45 pm IST

Published - February 23, 2010 03:12 am IST

The President's Address makes the startling statement that “higher prices were inevitable.” This makes it clear that the United Progressive Alliance government has no intention of a course correction in the policies that have resulted in continuing high rates of inflation of food items, which reached almost 18 per cent (Wholesale Price Index) in the week ending January 31, 2010. The government has consistently refused to accept its own responsibilities and has sought to explain away high prices through fake alibis, one of them being that high inflation rates are a global phenomenon. A comparison of the consumer price index of the G-20 group of countries in December 2009 shows that India has the highest annual consumer price inflation at 14.97 per cent. Clearly, domestic, not international, factors are responsible.

Two sets of data available are a pointer to the differential impact of policy. The report of the U.N. Department of Economic and Social Affairs has assessed that in 2009, 13.6 million more people were pushed into the ranks of the poor in India because of joblessness and high rates of inflation. At the other end, the profits of 33 sugar companies (according to a calculation made by a national newspaper) showed a huge increase of 2,900 per cent from 30 crore rupees in 2008 to over 900 crore rupees in 2009, a record by any count.

The presidential address speaks approvingly of liberalised imports of sugar to tide over the shortage. It does not, however, provide any answers to why the government refused to build a sugar buffer stock when there was a bumper crop two years in a row till 2008. In fact, the government incentivised exports to the extent of Rs. 1,350 rupees a tonne of sugar from April 2007. The Maharashtra government added another subsidy of Rs. 1,000 a tonne. Considering that approximately five million tonnes of sugar was exported between 2007 and 2008 this would mean an export subsidy from the central government to sugar exporters of at least Rs. 675 crore. The subsidy from the Maharashtra government would also run into several hundred crores of rupees.

Exports were incentivised till December 2008 when an export ban was imposed. Once the shortages thus created started impacting on the higher prices of sugar in the market, the Central government incentivised imports by removing all duties, first on raw sugar and then on white refined sugar. There was no control on the prices importers charged from market sales. So money was made both ways by the powerful sugar lobbies, through exports and then through imports and sale in the open market at high prices. It is hardly surprising that the profit lines of sugar companies have soared while consumers have to pay exorbitant retail prices of nearly Rs. 40 to 50 rupees a kilo.

Earlier in an agenda note circulated at the meeting of Chief Ministers, the government mentioned the increase in “crude oil prices” as a contributory factor to food inflation. Hikes in prices of petroleum products do affect food prices and other essential commodities, but who is responsible? After peaking in mid-2008, international fuel prices have fallen sharply throughout 2009; from June-July 2008 they have fallen by over 100 per cent. Even though they have risen recently, the level is still far below the peak. The Central government's policies of frequent hikes in the prices of diesel and petrol have contributed to higher prices of food items. The UPA government has raised the price of petrol and diesel 10 times in the last six years, the last time in July 2009. The Kirit Parekh committee has recently recommended further substantial hikes and deregulation of the prices of petrol, diesel, and cooking gas. This will have a disastrous impact.

Linked to the issue of petrol and diesel prices are the excise duties and tax policies of the government. An impression is sought to be created that whereas the Central government is pro-people in its tax policies regarding essential commodities, it is the State governments that are imposing higher duties on fuel. The reality is somewhat different. Take for example the taxes on petrol and diesel. At present the crude oil price is $ 74 a barrel (160 litres). At the higher international price of crude oil, one litre of petrol would cost Rs. 21.46 rupees a litre and an additional 10 per cent for processing costs. So why should the Indian consumer pay almost double the price for a litre of petrol and Rs. 32 for a litre of diesel? This is because the Central government continues to maintain a high tax regime of central customs and excise duties.

For every rupee spent on petrol in Delhi, the cost of the fuel is 48.64 paise, central customs and excise duties comprise 34.69 paise whereas the State taxes are 16.67 paise. This can vary with different States but not substantially. So who is taxing the people more, the Centre or the States? The Central government must stop revenue mobilisation through high indirect taxes on petroleum products, particularly at a time when international prices are rising.

It is made out as though State governments were responsible for high prices of sugar because of the higher slabs of VAT on sugar, including imported sugar. However, 23 of the 32 States listed in the note have nil rate of VAT on imported sugar. Both West Bengal and Kerala have no taxes on imported sugar. On the other hand, Jharkhand under President's Rule had the highest VAT rate of 12.5 per cent, Congress governments in Rajasthan and Haryana and the DMK government in Tamil Nadu have 4 per cent VAT on imported sugar. A quick comparison made on the VAT rates on various food items (rice, green gram, chana dal, wheat, and salt) prevailing in Maharashtra, Andhra Pradesh, and West Bengal reveals that it is the Congress-led State governments that impose a higher burden on food items.

The agenda note does not mention the food security legislation although this was a categorical assurance made in the first presidential address when the present UPA government took office. On the contrary, it relies on the dubious underestimate of poverty by the Planning Commission from the present 6.52 crore families below the poverty line to 5.90 crore families, to make out a case that it has been generous in not cutting allocations, according to the reduced BPL (below the poverty line) numbers. It does not even bother to mention that two official committees, the Saxena Committee and the Tendulkar Committee, however inadequate and incomplete their reasoning may have been, have advised substantial increases in the numbers of BPL families.

Equally unfortunate, in spite of the protest from almost all States to the Central government's policy of cuts in allocations to APL (above the poverty line) families to the extent of 75 per cent over the last few years, the note does not accept the demand for restoration of allocations. On the contrary it continues to push for sales to the State governments at almost double the issue price of APL foodgrains, in the name of additional allocations. State governments refused to lift the high priced stocks as a result of which out of the additional allocation of 20 lakh tonnes, only 1.71 lakh tonnes were lifted. If the Central government allots such grain at APL prices, the State governments would immediately lift the stocks. At a time when the government is holding buffer stocks of around 20 million tonnes, well above the buffer stock norms, its refusal to provide foodgrains at cheap prices to strengthen the PDS is rooted in its strong ideological commitment to allow free rein to the market forces regardless of the consequences.

It is for this reason that the defence and justification of government policy in the President's Address only adds salt to the wounds.

( Brinda Karat is a member of the Polit Bureau of the CPI-M. )


The phrase is to "rub salt into the (or someone's) wound". The heading and text of an article had the expression ". adding/adds salt to the wounds" (Op-Ed, February 23, 2010). (It is not "rubbing salt" or "pouring salt on the wounds" either, as a reader suggests.)

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