With the official price indices poised to break through the 12 percent ceiling, a lot of sense and nonsense — regrettably more of the latter — is being written in the media about the causes of the relentless march of inflation which is squeezing sustenance, and indeed, draining the life out of people in 100 million-plus households across the country who make do on the equivalent of $2 (Rs.84) per day.
Somewhat belatedly there is an emerging consensus that the proximate cause of the current inflationary surge is the sharp rise in crude oil prices in the international marketplace. Therefore the natural response to this phenomenon should be to reduce energy prices. Yet there is a curious conspiracy of silence within the Indian intelligentsia about the heavy over-taxation of petrol and diesel and over-subsidisation of kerosene and cooking gas by government, which has exacerbated the impact of the steep rise in crude oil prices in the international bourses.
Worse, there is a blanket of silence over the pathetic inability of India’s largest oil exploration companies — the public sector Oil and Natural Gas Commission Ltd (ONGC) and Oil India Ltd (OIL) — to raise domestic crude oil production which has remained stagnant at 30 million tonnes for the past three decades. The quadrupling of oil prices should have been a great incentive for ONGC and OIL to revisit oil exploration blocks written off as uneconomic earlier. The plain truth is that these capital intensive government-run companies have transformed into paper-pushing bureaucracies noted for their organisational politics and intrigue, instead of cutting edge exploratory sophistication.
Moreover after the new lease of life granted to the UPA government on July 22, an opportunity to resume the stalled process of privatisation and opening up of the Indian economy to foreign investors is available again to address supply and productivity deficiencies, which have hamstrung the economy for over half a century. Coterminously, demand management requires drastic cuts in government spending to release resources for investment in social sector spending, i.e education and health. In effect this requires slashing the high cost of maintaining the opulent durbars of government in Delhi and the state capitals and slashing the high wage bills of an unproductive bureaucracy, and the unlimited perquisites of office of ministers, MPs and government servants.
It’s also time for the middle class, spoilt by a plethora of unmerited subsidies, to acknowledge that thus far the high cost and poor productivity of government and the public sector has been paid by the neglected majority at the base of the country’s iniquitous social pyramid. As the revolt of the subaltern classes — the Naxal movement, the rise of caste consciousness etc — within Indian society indicates, this iniquity cannot endure. The threat of hyper-inflation and the onset of a dark period in the nation’s history offers the opportunity to radically alter the design of post-independence India’s failed economic growth and development model — a process begun in 1991 but abandoned mid-way.