Commentary/Ashok Mitra

Hope is a many splendoured thing

A defunct finance minister now has the gall to admit that he was wrong, there should have been more of public investment during 1991-96. His confessions, alas, do not help the country.

Come another quinquennium, perhaps other confessions will follow. For example, the oil pool account is in deficit, the present finance minister says, because administered prices for petroleum and petroleum products in the domestic market have been kept below international prices. This is supposed to be against all economic logic.

Someone had better remind the finance minister, he himself happened to be a member of the government during 1984-89; domestic prices of petroleum and petro-chemical products were kept above international prices for most of that period; that was how a huge surplus accrued to the oil pool account.

Few pundits either inside or outside official circles, other than the wretched Leftists, had then the gumption to suggest that such profiteering on the part of the government at the expense of consumers is not fair play.

Some questions pertaining to that not so distant past are still relevant. First, who ran through, in the late eighties, the Rs 300-billion oil pool surplus? Were not resources squeezed out of the earnings of ordinary people, which money lying with the oil pool account was frittered away to satisfy society's upper crust? If only the oil pool account had been carefully conserved, no need would have arisen to raise petro-product prices now.

Forget the radicals, even orthodox economists endorse contra-cyclical budgeting: using the surplus built in good times to defray expenditure in times of difficulty.

The argument that unless petro-product prices are raised across the board, the country will be short of resources required to cover the cost of importing the large quantities of petroleum crude, natural gas, diesel oil, kerosene, et al, that are needed to supplement domestic output contains a gross error? Raising extra sums from the users of petroleum products will be of no help to cover the extra cost of oil imports; imported goods have to be paid for in foreign exchange.

In a liberalised milieu, where everything is supposed to be open and above board, the finance minister could have been candid. He wants to increase petro-product prices because he wants to use the resulting extra revenue to narrow the huge deficit in the Union Budget. His pledge to the International Monetary Fund to limit the fiscal deficit this year to 5 per cent of gross domestic product has, rest assured, already gone the way of all flesh. The prospects look grimmer for 1997-98. The truth is not supposed to be shared with the people, the Fund might eavesdrop.

The finance minister's problems are not confined to the fiscal deficit. The rate of industrial growth having dipped, the rate of import growth too has come down from what it was last year. But the rate of growth of exports has declined even more, giving rise to the spectre of a widening trade balance.

The Group of Seven countries, themselves suffering from chronic unemployment, will not accept larger volumes of our manufacturers. Our officialdom knows this, as do our industrialists, and the World Trade Organisation is a paper tiger when it comes to disciplining the richer countries of the world when they infringe the rules of global free trade.

The obvious way out of the dilemma is to curtail imports. In case the annual imports bill for petroleum products threatens to spill beyond nine billion dollars, and the country's exports are faltering, the logical step ought to be to reduce imports and ration the supply of petroleum products. But such a prescription will be considered a sacrilege.

Our government has already allowed the setting up of assembly plants for Mercedes Benz and BMW cars in the country. Our affluent set has been assured that all the luxuries they want to enjoy will be arranged for them.

International financial institutions, foreign banks, multinational corporations and foreign governments have been informed that India's economic reforms are irreversible. Under the circumstances, no proposals for reimposing import restrictions are likely to be entertained.

If exports stagnate, the other conceivable way to meet a raised import bill is by additional external borrowings. There is trouble on this front too. Foreigners are a funny, undependable lot. The rulers in New Delhi have chosen to surrender comprehensively the nation's right of independent decision-making to them, and yet, they remain reluctant journeymen; they will not activate our stock exchanges by buying shares at prices to our liking, they will not invest in new productive activities, they will not offer us credit on reasonable terms either.

In view of this, brokers and commission agents are working overtime to ensure larger farm exports, including export of foodgrains. A convergence is taking place between the calculations of the Kulak lobby and the economic liberalisation buffs. These groups are not deterred by the risk factor involved in extra exports of farm products, including foodgrains, were the domestic crop suddenly to turn short and prices become volatile. High prices suit them, raise their profit.

The finance minister and his advisers cannot be distinguished from this lot. They are much too committed, for both class and non-class reasons, to the cause of liberalisation. The minister, gossip says, wants to see all controls lifted from consumer goods imports. How the foreign exchange is to be arranged to cover the resulting surge in demand for foreign goods is apparently a piffling matter society must not worry about.

Dogma rules. When the cost of imports goes up, and official intent is against a cutback in total consumption, efforts must then concentrate on raising the level of domestic output. Forget the ancient chronicle on the birth of the Oil and Natural Gas Commission and the dream once nurtured to attain, at breakneck speed, national self-reliance in the energy sector.

Economic policy has turned a full circle. Following the introduction of the great economic reforms, 34 oil and gas fields, developed by the ONGC at its own cost, were handed over for commercial exploitation to private parties, including parties collaborating with foreign firms. These private and foreign firms, the nation was told, will push up the pace of extraction of petroleum and natural gas.

Similarly, in the course of these half a dozen years, as many as 30 marked out development zones were transferred to private and foreign parties, again on the basis of the hypothesis that such a step will increase the speed at which oil exploration activity is organised in the country.

The result is there for all to see. Annual production of crude petroleum has plummeted by as much as six million tonnes, or roughly 15 per cent, over these post-reform years. A deadly sure formula has therefore emerged; if you want a declined in national oil and gas output, just lease out the fields to private parties, including foreigners.

Hope is a many splendoured thing. At the end of five years, the present finance minister too many perhaps say mea culpa; a fat lot of retrospective good that will do to the country.

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