UPA Government: Father & Mother of Inflation :-

“Inflation is the one form of taxation without legislation”
                                                                    - Milton Friedman

 
Article divided in 2 part

1.) Difference between Welfare schemes & Political schemes
2.) How Politically guided schemes responsible for Inflation

There is no discussion on the budget of Various shcmes like - Rs40000 crores for MGNARGA , Rs.90000 crores or Food security bill . Here is the Full focus on the indirect affect of such schemes on economy.

UPA Government Gave birth to number of “Populist” Schemes . Frequently Scholars and economists Criticized These schemes in Editorials of news papers and Prime time TV debates and the every time same argument given by the defender from the UPA govt. is : It’s Government duty to Aid the Weaker section of society. And It’s Also true.

First make it clear the Difference between Welfare Schemes & Political schemes

Indian Constitution have A Special Schedule with title “Directive principal of State policy” . And With the reference of this All Politician defend these schemes. This part of Constitution call for Better Health facility, Good Condition at work , Education facility , Special arrangement for SC/ST and women . For this Government made number of schemes since Independence.

The same part of constitution also said : The government took step to Decrease Inequality in society . The government shall step in direction of Ban on Alcohol , Equal distribution of wealth in the various section of society etc. But In 65 years of Independence no one government make any law for this.

Sachems like 108 , Right to education , PMGSY , National Health mission etc are real welfare schemes. They Create the Asset and Contribute to economy latter. As Example PMGSY road network in village helpful to farmers to transport 

their production to mandis fast and these Save the wastage of Agri products.

And there are schemes like MGNARGA , Minimum support price for Agriculture , Food Security act etc which only increase burden on Economy.

 There is noting wrong behind the intention of this schemes but problem in the Designing and implementation of schemes.

 Welfare schemes call “Populist” measures when it designed and Implemented With Short term Benefits . These types of schemes seems to perform well in Start but latter it make huge pressure on economy. 

Lets Start with MGNAREGA :-

All Know and huge Discussion over the budget of MGNAREGA. Nearly Rs.40000 crores speding on MGNAREGA . Economists Criticized on this huge figures but story doesn’t stop Here . It’s only the direct Effect of Scheme on economy but There are many indirect Effect of this.

May be no one calculated the Effect of MGNAREGA on Rural economy . And If someone calculated than Totally ignored by UPA Govt. Here are various aspects which Effect :-

(1.) Shortage of the supply of labor during Monsoon season in farms , this lead Hike in the wages of labor and overall it lead to increase the expenditure to farmer.

(2.) Per capita consumption increase ( It’s Good ) but Government have not any plan or resources to Fulfill this requirements and this lead inflation due to high demand –less supply.

(3.) If MGNAREGA fund use for Creating assets like well , Roads , Schools etc than good but It’s Not used in such manner.

MGNARGA inspired from the Scheme call : Employment guarantee scheme started in Maharashtra in 1970s but This schemes  design to implement only in non Farming seasons.

MSP – Minimum support price 

It’s not a new phenomena. It’s a Good Mechanism to help farmers . But Government use this for Political agenda . 

In Bharat Nirman advt UPA proudly saying that : They Increase MSP of Wheat ,rice 100% in last 10 years . It’s true.  But it’s no more help to Farmer . ( In next section , I explained the real behind the increasing MSP)  MSP should be use as small and Special tool for welfare of farmers and govt. main focus should be on technology use in farming , Batter Irrigation to farmers , Land reforms etc. 

But From the UPA years it’s seems that Govt have only one tool MSP for farmers, but it’s serve only for small time . It’s neigher good for farmer not for economy.

(1.) Higher MSP lead framers to grow more and more Grains , this lead scarcity of Fruits, Vegetables etc . This increase the price of Fruits and Finally lead to Inflation.

(2) Farmers tends use more fertilizers and pesticides  in hope to get higher yield and As we know We Spend huge amount as subsidy for  fertilizers and pesticides. This add Inflation.

Import policy :-

There are 200% - 300% important duties on the Edible oil , Pluses , butter , ghee etc. This aimed to serve two purpose :-

(1) To save the Indian Farmers from International products

(2) Government revenue in terms of Import duties

But , In 2011 Govt. Adopt Zero Import duty to these products to fulfill the requirements of High demand in the countries for this products . This Policy also affect duly to Economy.

( reason for High demands – (1) Per capita consumption increase due to MGNAREGA and Govt.  have not any plan to fullfil this requirement (2) High MSP lead high production of Wheat and rice but decrease production of pluse , edible oil etc  ) 

(1) Decrease government revenue due to Zero duty import 

(2) Foreign reserve use to import these items lead high current deficit . 

Both this lead to inflation .

Food Security Bill :-

As per Arun jetly told in Rajyasabha in the debate : We already spent 92 cores as Food  subsidy in various schemes and by Food security bill Designed to give 86 crores. Mean The area covered in Bill is lesser than current scenario. But going through bill mean : Food become a right and secondly you have to show enough stock to full fill the need for Act.

This is the real reason for giving High MSP to wheat and rice . UPA government consistently increase MSP on whet and rice to promote more and more production of these two commodity .

Food Subsidy = [ ( Minimum support price)   –   (Center issue price )] 
                                   ( Price on which govt. buy from farmer )   ( cost State buy from Center)  

Food subsidy also include the Expenditure to Maintain buffer stock , Transportation cost and Administrative cost

Total Food Subsidy =  Number of Benefiters    *    Food subsidy per person
                              (%of population covered  * Total population )   ( Per kg subsidy (MSP-CIP)  * No of kg / person ) 

Total Population & (MSP-CIP ) increase after every year , so food subsidy constantly increase year after year .

                                    

Food security Increase Inflation in Following manner :-

(1) Govt. reserving Grain much more than Actual need . This lead pressure on open market grain and this lead to inflation.

Actual need = Minimum buffer stock + 3 month stock of TDPS

But When Government have stock more than this govt have to sell this through Open market sell schemes to decrease the price of grain in open market . but UPS govt didn’t do so .They Stocked more to full fill the dream of Food security act.

               (Supreme court and CAG comment on the over reserved stock )

(2) Currently we have stock of grains, but in case of Drought OR any such circumstances if Production is not enough to fulfill need of Act than We have to import and this mean use of foreign reserve to buy grains. This also lead Current account deficit and finally Inflation.

This is the reason that Scholars Criticized this welfare schemes. Hope in this article You do not read this word "International Price hike of Oil" . Cause all the time PM , Ministers and spokesperson defend inflation through this augment.