Why nobody believes that this government is bold, reformist or pro-aam admi

So the fiery and often unpredictable “Didi” of Indian politics, Mamata Banerjee is all set to do what many felt was inevitable. Even as I write this, I honestly don’t know if the Trinamool Congress will actually walk out of the UPA or not. Nor do I know how Mulayam Singh Yadav, Mayawati and Karunanidhi will act. Some friends tell me that the countdown to the end of this UPA regime has begun and that it is a matter of time before the Manmohan Singh government falls without completing its full term. Some other friends tell me that the Congress has legendary “management” skills in this field and will ride out of the storm. They point out to how a minority Manmohan Singh government won the trust vote in 2008 and how a minority P.V. Narashima Rao government won the trust vote in 1992.

I really don’t believe that the survival-or-not of the UPA government is the most significant problem confronting India at this time. I think the real problem and the real challenge is the direction that economic policy making is taking in the country. Let us look at the grievances publicly aired by Mamata Banerjee. She has slammed the UPA government as being anti-people and is convinced that the diesel price hike, the rationing of LPG cylinders and allowing FDI in multi-brand retail will harm the common man of India. If they are actually harmful for common Indians, then I am all for the stance taken by Didi.

The thing is, I have repeatedly said that India is awash with unnecessary and unsustainable subsidies. I have repeatedly said that we have to both reduce and eliminate subsidies that often end up being gobbled up by the rich instead of the poor for which they are meant. So in principle, I would tend to agree with a reduction of subsidies for both diesel and LPG. But the problem is the manner in which this UPA government has been behaving since 2009. It has been so brazenly practising crony capitalism that nobody believes it when it talks about good intentions. Let me just give one example of how the common Indian views this latest LPG controversy. The latest decision stipulates that a family will be entitled to just one subsidized LPG cylinder every two months. Any cylinders required beyond this limit need to be purchased at market prices. The government claims that an average family uses one cylinder every two months. That is absolute nonsense. An average family almost always uses one LPG cylinder every month. Worse, this arbitrary decision – given the famed ability of Indians to indulge in corruption – will lead to massive black marketing. Already, when people are calling for booking an LPG refill, dealers are claiming that they have no stock. Of course, the stock is there if you want to buy at black market rates. This is taking India back to the notorious days of rationing where rice, sugar, cooking oil, cement, phone connections and Bajaj scooters were always out of stock but available to those who had enough money to pay black market rates. This is not reforms or a forward moving decision. It is downright regressive. Why can’t the government find a way to ensure that those who can afford will pay market prices for LPG? We have had the UIAD project going on since 2009. Of what use is so much expense on it if we can’t solve even the simple problem of targeting subsidies to those who really deserve them?

Even worse is the message this government is sending out by retaining the right of so called VIPs to use as much LPG as they want to. According to official statistics, in one year, the Vice President of India Hamid Ansari used about 171 LPG cylinders; the wife of the Patiala royal scion Amarinder Singh used about 72 cylinders; Mayawati used about 92 cylinders; A. Raja used about 89 cylinders even as he is cooling his heels in Tihar Jail and Forbes billionaire Naveen Jindal used more than 350 cylinders. How can any government that claims to be for the aam aadmi justify this kind of downright shameful feudal behaviour? And how do you expect Indian citizens to react when you tell them they cannot use more than one LPG cylinder every two months? I repeat, a lot of the subsidy on LPG needs to be removed immediately. But is this the way to do it? Unfortunately for the government, its decisions do look like they favour industrialists more than average citizens. Take fertilizer subsidies that could touch Rs 1 lakh crore. It is an open secret that the government reimburses fertilizer companies the subsidy amount and doesn’t give it directly to the farmers. That is, reducing fertilizer subsidies would directly hurt many corporate bottomlines. So you invoke the farmer and don’t touch the fertilizer subsidy. As if the really poor farmer can afford to buy even subsidized urea!

Yes, the diesel price increase was long overdue and any protest against that is completely illogical. Worldwide, diesel prices are 80% of petrol prices; so there is scope for far more increase in diesel prices in India – and the IIPM Think Tank has been vehemently proposing the same for 15 years in our alternative budgets. There is no significant inflationary impact because of an increase in the price of diesel as prices of produce go up hardly by ten paise or so per kg. A seat-of-the-pants’ calculation reveals quite some insight. A goods truck typically carries about 12 tonnes of produce and travels 4 km per litre. That means that for a typical distance of about 1200 km that products are transported, 300 litres of diesel are required; and a Rs.5 increase per litre means an addition of Rs.1500 for 12 tonnes translating to a negligible 12.5 paise per kg – which is negligible compared to the possible benefits. And that’s where the problem is. No one actually believes that the money thus generated will be utilised for pro-poor policies by this anti-people government which has lost its moral legitimacy to be in power.

Let us finally look at the so called “bold” steps to allow FDI in civil aviation and multi-brand retail. Let’s be honest about this... Does anyone really think FDI in civil aviation will lead to a massive increase in jobs for the average Indian? At best, it will benefit a handful of promoters of domestic airlines and in particular one airline which is right now cash starved. That’s all. And then there is another debate going on about the benefits of FDI in retail. One argument being forwarded is that it will help the farmer. The logic is: most of India’s vegetable and fruit harvest rots because of lack of cold storage facilities. Apparently, FDI in retail will change that dramatically. Really? FDI in cold storage has been allowed by official policy for almost 20 years. How come no cold storages have come up in rural and small town India? Quite simply because there is just no electricity to power those cold storages. And you must be living in a fool’s paradise if you think WalMart, Carrefour and Tesco will invest money in captive power plants to run cold storages. If the Ambanis, Tatas, Birlas and Goenkas have not done it, why would they?

Now let’s look at how this “bold” step will create so many jobs. One recent report claims that FDI in retail will create 10 million jobs in ten years. I don’t know how true it is. But if the aim of policy is to take ‘bold steps’ to create a massive number of manufacturing jobs, how come the government is not taking actual steps to do that? Let me give you just one example of how ‘serious’ this government is about massive job creation.

We all know that India has been historically a great power in the textile and garments industry. And we expected that the government will take bold steps to ensure that textile and garment exports witness a quantum jump since the quota regime that placed restrictions on exports has been abolished. The quota regime was abolished in 2004-5. Between then and 2010-11, textile exports from China increased from 95.5 billion dollars to 206.3 billion dollars. In the same period, textile exports from India increased from 13.5 billion dollars to 23.2 billion dollars. The dark horse was Bangladesh, whose textile exports zoomed from 6.4 billion dollars to an astounding 20.2 billion dollars! It is quite possible that Bangladesh will overtake India soon in textile exports!

Now we have to ask the question: what policies has the UPA government launched to nurture one of the most labour intensive industries, and one in which India has many natural advantages? Just this one example illustrates how ‘serious’ this government really is about taking bold steps to increase investments and create millions of jobs. I could give many more similar examples. The fact is, we need FDI in manufacturing and infrastructure where employment grows and a country’s backbone is built.

But what’s the point talking about all this? The fact is: the average Indian citizen is becoming increasingly convinced about two things: the first is that this government is not serious at all about tackling massive corruption, loot and plunder. Second, this government sheds only crocodile tears for the aam aadmi even as it does all it can to favour industrialists and multinationals. If politics is the art of gauging public mood and perceptions and acting accordingly, then I think Mamata Didi has done remarkably well this time.

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