A claim to shame

The prime minister has advised people to not be misled by those who spread false information on India’s economy. But this applies to him more than anyone else

In response to the widespread protests and the nationwide hartal last Thursday, Prime Minister Manmohan Singh addressed the nation on Friday and tried to explain why these decisions had become inevitable. The thrust of his argument was, “We need a revival in investor confidence, domestically and globally.” For this, the current high fiscal deficit must be contained and, hence, the hike in the prices of diesel and cap on liquefied petroleum gas (LPG) cylinders became essential. The subsidy on petroleum products, we are told, was “R1,40,000 crore last year”. If the prices were not increased, then this would “have been over R2 lakh crore. Where would the money for this have come from? Money does not grow on trees”.
Face the nation: People watch Prime Minister Manmohan Singh address the nation, Allahabad, September 21 How has this subsidy figure been arrived at? This is much higher than the budget estimates. This seems to be calculated on the basis of the ‘under recovery’ of the oil companies. What is this? It is the difference between the retail price of petroleum products and its import price. It is, hence, notional in nature because import prices include duties, insurance, freight and other levies. These are not paid by the Indian companies since what we import is crude oil, which is processed in India to produce petrol, diesel, kerosene, etc. Instead of linking the price to the cost of imported crude plus domestic refining cost, the international price is taken as the benchmark. This is the gigantic fraud.
This fraud is reflected in the fact that all the oil companies are reporting handsome profits, not losses. Oil and Natural Gas Corporation (ONGC) Limited declared a net profit of R25,123 crore for the year 2011-12. For the following quarter ending June 30, 2012, it has reported a further growth of 48.4%. Indian Oil Corporation (IOC) has reported a net profit of R4,265.27 crore. Hindustan Petroleum Corporation Ltd (HPCL) reported a net profit of R911 crore. For the last quarter, January-March 2012, this further increased by 312%. Bharat Petroleum has reported a net profit of R1,546.68 crore.
Further, parliamentary answers and proceedings show that from 2010 onwards, the central exchequer has been earning anything above R1,30,000 crore annually through taxes and duties on petroleum products. After accounting for all subsidies, the Centre was still left with a surplus of over R90,000 crore in 2010-11. Who is subsidising whom, Mr prime minister?
Consider the argument to reduce the fiscal deficit in order to gain investor confidence. About 6.9% of our GDP in 201112 translates to nearly R5.22 lakh crore. On the other hand, the government granted tax concessions to corporates and the rich to the tune of R5.28 lakh crore. If this was not done, then there would have been no deficit at all. Having given the rich such high levels of subsidies, severe economic burdens are imposed on the aam aadmi to contain the fiscal deficit.

Subsidies for the rich, we are told, are incentives for growth. Yet, the growth in the manufacturing sector declined from 3.6% in July 2011 to 0.1% in July 2012. As the purchasing power in the hands of the vast majority of our people continues to shrink due to the relentless price rise, these mammoth subsidies do not find investment avenues. Instead, they end up in speculative activities, as it is reflected in the boom in the prices of real estate and gold. If our economy has to grow in a healthy and inclusive manner, then the prime minister must focus on expanding the purchasing power among our people and, consequently, vastly enlarging domestic demand. This will give a boost to the manufacturing sector and set in motion a cycle of sustainable growth. Instead, the opposite is being done — robbing the ‘emaciated’ Paul to pay the ‘obese’ Peter.
The PM believes that permitting foreign direct investment (FDI) in the retail trade sector will ensure that “wastage will go down; prices paid to farmers will go up; prices paid by consumers will go down” and this will also “create millions of good quality jobs”. But we should remember that retail trade contributes around 11% to India’s GDP and employs over 40 million people. So apart from jeopardising their livelihood, the PM’s claims are a myth.
A report of a committee of the US House of Representatives as early as February 2004 concluded that “Walmart’s success has meant downward pressures on wages and benefits, rampant violations of basic workers rights and threats to the standard of living in communities across the country. The success of a business need not come at the expense of workers and their families. Such short-sighted profit-making strategies ultimately undermine our economy.” While 18 jobs were created by a street vendor, 10 by a traditional retailer and eight by a shop vendor, a supermarket needed just four people for the same volume of produce handled.
A study showed that a cocoa farmer from Ghana gets only 3.9% of the price of a typical milk chocolate bar while the retail profit margin was around 34%. A banana producer gets around 5% while 34% goes as profits to the retailer. Similarly, 54% of a pair of jeans goes to the retailers while the manufacturing worker gets only 12%.
These are the facts. But the PM exhorts: “Please do not be misled by those who want to confuse you by spreading fear and false information”. This applies to him more than to anyone else.
Finally, the repeated references by the PM to the fact that we are today facing a situation similar to that in 1991 only begs the question: Is this the advance that India has made after two decades of economic reforms?