BackOurview | An economy in the frying pan
Ourview | An economy in the frying pan
PremiumJayachandran/Mint
People learn from their mistakes. We hope governments do.
There seems no such wisdom on the horizon right now. The government has decided to go ahead with a law that will guarantee cheap food to two out of every three Indians, a move that will add an estimated ₹ 40,000 crore to the subsidy bill at a time when there is waning confidence among investors in the state of public finances. Policy is being made in cuckoo land.
Former finance minister Yashwant Sinha told this newspaper on Monday that the slowdown in economic growth, persistently high inflation and the collapse of investment could be traced to the unwarranted fiscal expansion in 2008. That was the original sin. Will the food guarantee be the final straw?
In 1973, Indira Gandhi had decided to nationalize the wholesale trade in wheat at the high noon of her Garibi Hatao days. She said it would finish off the despicable trader: the babu would replace the bania. It would help bring food inflation to heel. The grain monopoly of the state starved private markets. Food prices rose even further. Evil hoarders were blamed for the effects of bad policy.
Both decisions proved to be turning points. Indira Gandhi learnt from her mistake. That marked the end of her flirtation with extreme socialism, which began in 1969. V.P. Singh did not have enough time in power to face the consequences of his actions; but the political class learned enough from the crisis to (albeit grudgingly) provide tactical support to economic reforms after 1991.
The food bill could well be another turning point. It is to be seen whether its effects will resemble 1973 or 1991. In other words, will the main effect be the complete disruption of private food markets? Or will it be the final act before a fiscal crisis? Or will we see some combination of the two? Or perhaps sceptics like us will be proven to be completely wrong?
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!
