Price rise during deflation Sunday, Jun 21 2009

While the nation is experiencing deflation, Kerala is witnessing all round increase in prices of essential commodities including vegetables.

It is difficult to explain this situation through normal means. However, it becomes easy to explain it if we postulate that it is masterminded, probably with the aid of politicians. We are told that the price of rice jumped by Rs. 3 to Rs. 5 a kg because of transportation problems. Enough wagons were not made available by the Railways even while the new Minister of State for Railways E. Ahmed was talking of ending the neglect of Kerala in railway development.

So, the theory is that this is the results of elections– traders trying to recover the contributions they were forced to make to the political parties for funding the campaigns by artificially jacking up prices with the aid of those in power. The Opposition is not making any hue and cry over the price rise. The Government’s response is a lot of sound and fury from the party of the Food and Civil Supplies Minister and a few special markets in the cities. It is suggested that these special markets in the cities would help the consumers when the real sufferers of price rise is the poor villagers.

Kerala has seen such price rises, strict enforcement of helmet rules and even loss of trees from the forests when the politicians need money. This has happened under the present government also.

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Kerala Cabinet to stage dharna in Delhi Tuesday, Oct 7 2008

V. S. Achuthanandan with a few of his Cabinet colleagues

Chief Minister V. S. Achuthanandan is proud of his plan to go to Delhi and stage a dharna there on October 17. He says that it is because he would be expounding people’s cause. His protest is against the Centre neglecting the States demands for better quotas of grain, power and other concessions.

However, he would be striking a blow to Indian federalism. Such actions reflect weakening of our institutional systems. One need not doubt that the Chief Minister has genuine grievances when he leads his Cabinet and State legislatures to Delhi in protest. But it is also to be observed that both the State and Central governments have failed to deal with each other in an effective and fair manner. The Members of Parliament, representing the State, have failed to play their role effectively in Parliament. Why could not they represent the State properly? All 20 of them were supporting the UPA Government until recently.

There is also little doubt the Chief Minister has other compulsions in rushing tot the Centre at this juncture. It is part of his strategy for winning seats for his Front in the coming Lok Sabha elections. So, the Prime Minister Manmohan Singh should take the matter seriously and deal with it in a statesman like manner. It is in the country’s interest that the two leaders settle their differences, if any, over the table rather than on the streets. Petty politics should not come in the way of settlement. For the Indian Union shall not become a wonderland of an emperor, empress and satraps.

The UDF response is typical. It will stage a dharna and disrupt traffic before the Secretariat on the same day (October 17) against tariff hikes. Well, they can easily forget that prices have risen all over India.

Related: Power crisis in Kerala

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Free tap water for poor is bad economics Friday, Sep 26 2008

Free water announced by the government for the poor is sheer populism in the wake of elections to the Lok Sabha.

The water tariff revision is partly the result of compulsions from financial agencies such as the World Bank, which wants the Kerala Authority at least to realize the production cost of water if not the heavy investment in water supply schemes. It also wanted to the government to eliminate public taps.

However, the government does not want to appear to be taxing the poor. Hence, the misguided policy decision to supply them free water. We can only hope that other States would not emulate this as that leads to sheer wastage of water and training of the poor to overuse water.

The Government expenditure for the subsidy is almost double what the poor get as water at lower consumption brackets are already subsidized. The government could have used the money for some direct welfare measures for the poor instead of teaching the poor excessive use of water.

Related: Rewarding consumption, fostering wastage

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No rice for Onam festival Wednesday, Aug 27 2008

FCI godown in Kerala

It is going to be a political fight between Kerala and the Centre (Central government) for rice. The Centre has drastically cut rice quotas to the State for public distribution. It soon turned into a political fight with the Union Minister for Agriculture and Civil Supplies Sharad Pawar taking umbrage for the absence of representatives of his party in the all-party delegation from Kerala that approached him for more rice. Though Prime Minister Manmohan Singh was initially sympathetic, the equations have now changed with the Left parties withdrawing support to his government.

Politics apart, let us examine the pros and cons of the decision of the Centre to cut quotas. Kerala has not been drawing the allocated quotas for the above poverty line cardholders for years as the APL cardholders had mostly stopped getting their supplies from the public distribution system (ration shops). With increase in price of rice, some have returned to the ration shops. However, current demand is not entirely based on demand from the cardholders. Many ration dealers sell rice in the black market where it fetches higher prices.  With increase in price of rice, black market deals have become more lucrative. By demanding large allocations, Kerala government is actually catering to those who divert ration articles. However, it is to be accepted that higher availability of rice whether in the PDS, open market or black market would have the effect of holding the price line.

The Centre had a good reason in limiting allotments when the buffer stocks were running thin. However, the situation has now changed with better procurement this year. The FCI godowns are now flush with grains. The Central government is even planning to auction off rice. So, there is little justification for denying reasonable quotas to the State. After all, statutory procurement of grains from the producers is noted intended for making profits. It should be distributed through the public distribution system itself. As Kerala is a food deficit State, it request for more rice merits consideration, if adequate steps have been taken to prevent its diversion. The special allocation given to the State (10000 tonnes of rice) is inadequate considering the cuts in regular quotas.

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Hartal over price rise is irrational Thursday, Jun 5 2008

Another hartal in Kerala and bandhs in several States of India caused immense hardships to people and losses to the country’s economy this week. It was over hike in petrol, diesel and cooking gas prices.

We know that Indian Government has little control over petroleum prices. Even if it were forced to bring down prices, the general public would be paying for the losses of public sector oil companies. So, demand of the leftist parties and the Bharatiya Janata Party is that the Government should subsidise the air-conditioned cars of the rich who consume petrol in high quantities!

Now, the Centre has asked States to cut the taxes. The result is the same. The motor-riders would benefit while the State will lose higher revenues that could be used for the benefit of all. (This is in addition to the subsidies some car manufacturers are getting like subsidised land.)

It can very well be argued that the tax rates on petroleum products are unreasonably high. Yet, there is little rational for tinkering with actual prices, provided one takes into account the cost of domestic production, which could be lower. The tax burden can, of course, be partly shifted to items like luxury cars to ease the burden on the general population and economy.

The hartal caused a loss of about Rs. 3 crores to the Kerala State Road Transport Corporation, as it had to maintain its infrastructure and run some empty buses. It has to pay monthly salaries to its employees while it loses a day’s revenue. This is the case with every institution that pays monthly salaries to its work force. On the other hand, the poor daily wage earners suffer because they cannot go for work on the hartal day.

The political parties organised hartal against general rise in prices. The country loses nearly 1/365 of production in several spheres. The result will only be weakening of the economy and increase in prices. Every economist knows that lowering of production by a factor of 1/365 can increase prices. One can see that such hartals are irrational. Many Indians understand that. But the politicians think that they could hoodwink some through such protests. (updated on June 6, 2008.)

Earlier posts
Hartal: the weapon of bankrupt politicians
Hartals galore in Kerala
Hike and double standards

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US president, Indian middle class and food scarcity Monday, May 5 2008

The U. S. President George Bush’s statement that prosperity of Indian middle class has led to spiraling of global food prices have attracted strong criticism in India. The communists in Kerala were the most vociferous.

However, the critics of Bush’s statement have reacted somewhat superficially, ignoring some hard facts. The first point is that there is some truth in what Bush is saying. Second is that it is not just diversion of good grains for fuel production that is harming the world most, but subsidies for bio fuels.

It would be very difficult to stop a shift from food crops to bio fuel crops if bio fuel is cheaper (and not less efficient) than other fuels. Laws or policy prescriptions would have very little effect on such a shift worldwide. Ultimately, markets would determine the balance. What governments should do is not to subsidize bio fuel crops and subsidize food crops. Subsidy for food is important as survival of many depend on it. The Western nations are doing a grave crime against humanity by subsidizing production of fuel from grains.

However, it is to be noted that countries outside the US and Europe also offer subsidies that harm food production. Let us look at Kerala State for instance. What Bush says had happened here much before. People had gone for tapioca at times of poverty and scarcity. With prosperity and increased availability of rice, they switched back to rice. The State could have retained some of the area under tapioca and gone for fuel production (alcohol) without much effect on rice production. But that did not happen for want of viable technologies and investment.

On the other hand, rice paddies were steadily being converted from the seventies to garden lands with coconut, banana, areacanut, rubber or other crops. The Rubber Board subsidized replanting of rubber. There were subsidies for other crops also. But sufficient subsidies and work culture was not there to ensure the retention of paddy cultivation in many areas. So, the food deficit of the State kept on worsening. Higher prices for rice could make paddy cultivation increasingly profitable and stem the tide of conversion of the paddies. But the poor ought to get rice at affordable prices. So, targeted subsidies are justified. At the same time, there should be mechanisms to check price rise resulting from shortages and prevent the budget of the middle class from going haywire.

All subsidies, whether it is to the farmer or others, ultimately go to the consumer. Subsidy for rubber benefits the tyre manufacturer. Subsidy for biofuel benefits large consumers the most. Subsidy for food benefits all (and somewhat equitably since you cannot eat more than a stomach’s full), but the poor would benefit most.

Americans and most of the Westerners are heavy users of energy. They waste a lot of resources, ranging from energy to toilet papers. So, they are basically responsible for all the shortages in the world. To be more precise, all those who waste resources across the world are responsible.

Incidentally, Keralites have achieved quality of life on par with many Western nations by using comparatively lesser resources. (See Wikipedia article)

For further reading:

US eats 5 times more than India per capita

Global Agricultural Supply and Demand: Factors Contributing to the Recent Increase in Food Commodity Prices (U. S. Economic Research Service; 05/01/08 )

Matters of scale: into the toilet
Toilet paper consumption in US and elsewhere

Food crisis payback for ’20 years of mistakes’: UN expert

UN Says US, EU Biofuel Production Irresponsible

Political parties criticize Bush’s remarks

Kerala Model

Why blame India
Interesting facts about projected increase in food consumption

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Hartals, the weapon of bankrupt political parties Wednesday, Feb 6 2008

The Opposition United Democratic Front in Kerala is bent on organizing a hartal on February 19 to protest against price rise.

Haratal is today a weapon of political parties that lack constructive programmes and actions. Their self-centers cadres, who have joined politics for personal gains, cannot be mobilized for any mass action, without the political parties spending huge sums on them.

People often cite that Mahatama Gandhi organised the first haratls. However, a close look would show how different they were. The hartals called by Gandhiji was organised by volunteers without resort to violence. Now, it is fear of violence by often paid goons of the political parties that keep people away from their occupations.

Gandhiji knew that his hartals would hit the colonialists in the cities than the rural populace. The peasantry would be able to carry on with their occupations without interruption while the movement of goods and services needed by the colonialists would be hit.

Today, there is no colonialists to fight against, but only elected governments. The Opposition should win the support of the people and bid for power instead of harming the economy. Life in the twenty-first century needs 24-hour uninterrupted services. The hartal by the UDF will only contribute to price rise by halting production for a day.

Statistics on hartals

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