Rift wide open

The ideological rift within the United Progressive Alliance government has widened in the wake of Prime Minister Manmohan Singh’s statement in favour of further decontrol of the prices of petroleum products. It’s not just the Trinamul Congress which is upset about the increase in petrol price (which was, in any

case, decontrolled in June 2010). Within the Congress Party there is growing unease that the broad thrust of the government’s economic policies — that are focused on spurring growth and containing the fiscal deficit — have failed to control inflation, especially food prices, in the process making the ruling coalition increasingly unpopular.
The recent hike in petrol price by `1.80 a litre — bringing its price to close to or above `70 a litre in different parts of the country — is unlikely to further fuel inflation but could enhance inflationary expectations. The reasons are obvious. Petrol is consumed by only a small section of the car-owning population. Moreover, in recent months, more than half the passenger cars being sold run on diesel, not petrol. But what will spur expectations of further price increases of a generalised nature is the possibility of decontrol of diesel and, perhaps, cooking gas prices in the not-too-distant future.
According to news reports, Dr Singh apparently remained unmoved by the growing clamour against the hike in petrol price when he addressed reporters on November 4 on the sidelines of the deliberations of the Group of Twenty countries in Cannes, France. This is what he has been quoted as saying: “We must move in the direction of decontrolling more prices. I have no hesitation in saying markets must find their own levels, except for those commodities which are semi-public goods.”
One can discuss ad nauseum what are public goods (including land, air and water) and what could be considered “semi-public” goods that ought to be subsidised by the state — rice, wheat and fertilisers fall into this category. It is not at all clear whether or not the Prime Minister wants to categorise cooking gas and kerosene as “semi-public” goods. In a completely different context, he had gone to the extent of arguing that even telecommunications spectrum used for mobile phone services could be considered eligible for government subsidies when he justified the manner in which his former communications minister Andimuthu Raja allocated second-generation spectrum on a first-come-first-served basis in January 2008.

The moot point of contention in this ideological debate within the Congress is the extent to which Dr Singh’s market-friendly policies of economic liberalisation are widening inequalities within the country, thereby eroding popular support for the ruling coalition.
In one sense, the internal discord within India’s “grand old party” on economic ideology is reminiscent of what happened when the Congress lost power in May 1996. At that time, Dr Singh (who had by then completed five years as finance minister in P.V. Narasimha Rao’s government) had been viciously attacked by some of his party colleagues for espousing what were called pro-rich policies that had supposedly alienated many traditional Congress voters. In 1999 as well, there were similar attacks on Dr Singh’s economic policies in internal deliberations of the party (by, among others, the late Arjun Singh and the late Rajesh Pilot).
The Congress was never an ideologically monolithic party, nor is it now. The so-called “Left-wing” within the party is especially perturbed these days. This section is worried that food inflation has not just sharply eroded the real incomes of the poor, but also resulted in a perceptible widening of the income and wealth gaps between the affluent and the under-privileged.
This group of Congress supporters is wondering why the “neo-liberal” coterie led by the Prime Minister (including, notably, Planning Commission deputy chairman Montek Singh Ahluwalia, home minister Palaniappan Chidambaram and the head of the Prime Minister’s Economic Advisory Council Chakravarti Rangarajan) is not considering the likely fallout of anti-capitalism agitations in cities across the world on India.
One senior Cabinet minister, speaking to this correspondent on condition of anonymity, said Dr Singh’s “obsession” with containing the fiscal deficit, even if it entails cutting down subsidies on petroleum products and food, could prove “disastrous” for the party. “It is a form of market fundamentalism that is almost rejecting the reality of what is going on in economies in different parts of the globe where governments are spending more and more to get out of recession,” he rued, adding that there is “nothing sacrosanct” about the Budget target of keeping fiscal deficit at 4.6 per cent of gross domestic product.
This minister said, “India is not Greece” and in no danger of falling into a debt trap. He felt the government should not be overly concerned if the fiscal deficit rises by even one percentage point above the Budget target by stepping up subventions to public sector oil companies to ensure that diesel, cooking gas and kerosene prices do not go up. This senior Congress leader added that government spokespersons had lost a huge amount of credibility over the last few years by claiming every now and then that the inflation rate would come down. Instead, inflation has remained and continues to remain stubbornly high.
He further claimed that the government had put pressure on the Reserve Bank of India to harden interest rates on no less than 13 occasions in the last 15 months. “The government wants to convey an impression that it is acting to contain inflation but what is actually happening on account of the RBI’s decisions is that investments are slowing down without any impact on inflation. They are trying to convince us that things would have been worse if the RBI had not acted, but I for one am not convinced by this economic logic.”
The vehemence of this minister’s diatribe and his contention that even UPA chairperson Sonia Gandhi is not being able to “check” the Prime Minister or convince him to “think and act differently” came as a bit of a surprise to this writer. Hence, one is making an imputation that the divide in the ruling coalition on the thrust of the government’s economic policies has deepened.

The writer is an educator and commentator