INFLATION, RECESSION MARKS THE

NEW YEAR

As 21st century’s first decade ends, globally capitalism has exposed its historical
limitations with the economic recession continuing. Large scale destruction of wealth,
declines in industrial production and global trade has, according to the International
Labour Organisation, increased global unemployment by 61 million people enlarging the
total to 241 million. This is accompanied by a sharp drop in the medium growth in real
average wages of the working people. This declined from 4.3 per cent in 2007 to 1.4 in
2008 and is expected to have dropped even further in 2009. Both these put together
have according to the World Bank pushed an additional 89 million people into poverty
taking the global figure to above 1.5 billion.

The majority of Indians, mainly the poor have been subjected to relentless battering of
rising unemployment and high food prices. This obviously has pushed many more
people in our country into poverty.

The prime minister struck a very defensive tone at the recent conference of the Indian
Economic Association by stating that “the percentage of the population living below the
poverty line has certainly not increased.” There is an obvious realisation that the
economic policies of liberalisation or reforms has ended in creating two Indias – a
Shining and a Suffering. In an admission of guilt of sorts, he said, “based on the
available evidence, we can claim that there is no evidence that the new economic
policies have had an adverse effect on the poor. He also said “in fact, it (poverty) has
continued to decline after the economic reforms atleast at the same rate as it did before”.

This in fact tallies with the latest official estimation of the incidence of poverty. The
Suresh Tendulkar Committee, set up by the Planning Commission, has now put out an
estimate that over 37 per cent of Indians live in poverty as compared with the existing
officially estimated 27.5 per cent. Earlier, the National Commission on Enterprises in the
Unorganised Sector estimated on the basis of consumer expenditure data that 78 per
cent of Indians are being forced to survive on less than Rs 20 a day. This implies that
nearly three- fourths of our population is today living in poverty.
There is a great deal of controversy on the methodology adopted for arriving at correct
estimations of poverty. There has been a general tendency of gross underestimation.
Notwithstanding this, it is now officially recognised that the number of people living below
the poverty line has been growing in absolute numbers.

This also converges with the fact that many a state government has challenged the
central government’s estimations of those living below the poverty line (BPL). This has
become significant since the budgetary allocations for rural development programmes
and the supply of foodgrains to the states from the centre are determined by these
estimations.

Simultaneously, the quality of livelihood of the aam aadmi has sharply declined due to
rising food prices — by a whopping 20 per cent this year. Despite all official
explanations of a demand supply mismatch, worst monsoon in 37 years etc., the fact
remains that the government has completely failed in arresting this runaway inflation.
Much of this rise in prices can be attributed to speculative trading in these commodities.
Since April 2009 the companies that have invested in food stocks have reported returns
ranging from 150 to 300 per cent. how speculative trading in commodities has been
contributing to such inflation? In the single month of June 2008, the total value traded in
the commodity exchange was over Rs 15 lakh crores. Such high volumes are traded
with the expectation that there will be greater returns. Such greater returns however can
only come when the prices of these commodities rise above the levels at which they
were when the trade took place.

Therefore, there is no other way to control food prices except to crack down on such
speculative trading and by banning the forward/futures trading in all essential
commodities. This must be accompanied by strengthening the public distribution system.
Unless this is done, the double whammy assault on the aam aadmi cannot be
prevented.