‘Big Ticket’ Reforms and Bigger Deceptions: Shankar Gopalakrishnan
Guest post by SHANKAR GOPALAKRISHNAN
When the country’s rulers have to tell barefaced lies to get their policies through, you know that there’s something wrong. Consider the recent “big-ticket reforms,” of which the two biggest (in terms of direct impact) have been the diesel price hike and the opening of the retail sector to FDI. The diesel hike, we’re told, was a “tough decision” necessary to “prune subsidies.” Except that diesel isn’t subsidised in this country. To repeat: there is no subsidy on diesel in India. As for FDI in retail, the Cabinet statement on the policy cites four justifications, accompanied by a “Studies show…” claim. Except that the data in the government’s sole study on the issue does not support three of these four justifications. As for their much touted “safeguards”, at least one has been said to be illegal by the Commerce Ministry itself, while the very same CCEA meeting diluted a similar safeguard for single brand retailers.
Whatever one may think about economic policy, the fundamental question is: why does this happen? What does this overt mendacity tell us about the character of the policies these people are pushing?
On diesel, first. According to the Merriam-Webster dictionary, a subsidy is “a grant or gift of money”. Wikipedia calls it an assistance paid to a business or economic sector.” But the government does not grant anyone money for diesel – diesel, and all petrol products, are net revenue earners for the government. As argued in detail in the excellent article “The Great Fuel Subsidy Hoax” by CP Chandrasekhar and Jayati Ghosh, “the petroleum sector is not a burden on the government, but rather a cash cow that yields large revenues in the form of customs duties and excise duties.” The so-called “subsidy” is an accounting trick whereby a certain proportion of government revenue (including that from diesel / petrol, remember) is transferred back to the oil companies. This juggling of the books appears in the Budget as a “subsidy.” But the end result is that people in India still pay well above the “international market price” of petrol – even as it is claimed that rising international prices require price hikes. The real question then is not how much to subsidise diesel and petrol but how much to tax them. The current move is an increase in the effective tax on diesel. Why then don’t we have a debate on how much to tax diesel and petrol in this country? Why is everyone from Montek to the financial press turning the question upside down? We’ll come back to this below.
Next, FDI in retail. The government’s sole study on FDI in retail – done by ICRIER in 2007 – was remarkably shallow, narrow and biased (see “FDI in Retail: What Does the Government’s Own Data Say?” for a critique of this study). But even the data that it found does not support the claims of the government. Statements that current smaller retailers can compete with corporate ones ignore the fact that the survey showed a sharp decline in turnover and profits for small retailers near corporate outlets, with a majority reporting that the reason for the decline was the opening of the corporate retailer (ICRIER went on to claim that this “diminishes over time”, but the logic for this claim is both circular and invalid). The government says “farmers” will benefit; even ICRIER’s highly limited sample of very well off farmers in Karnataka found that only the wealthiest among them were able to sell to corporate retailers. Moreover, ICRIER itself said that safeguards and strengthening of the mandi system are required alongside this – measures that the government has not said a word about. As for “global experience” showing that small retailers are not harmed, chapter 3 of the ICRIER study itself mentions several cases of severe damage to small retailers from FDI (while ignoring many other examples; see “Indian Government’s Claims About Corporate Retail and the Reality” for more details). Regarding employment, the ICRIER study comes up with a figure which is one fifth that cited by Anand Sharma, and neither has any source for their figures; nor does either account for employment that will be lost as a result of FDI. It’s a bit like calculating your monthly accounts by only looking at your income and ignoring your expenses.
As for local sourcing and stopping imports, in August 2011 the very same Commerce Department had said that local sourcing cannot be mandated as any such requirements would violate the WTO’s Trade Related Investment Measures agreement. In short, the policy amounts to doing something now in the secure knowledge that it will later be overturned by some other body – allowing the government (and the retailers) to have their cake and eat it too. Meanwhile, in the very same Cabinet meeting, the requirement for local sourcing for single brand foreign retailers was diluted to make it only applicable “where it is feasible”.
Finally, there’s the small matter that Commerce Minister Anand Sharma lied to the media on Thursday about whether the Cabinet would consider FDI in retail at all.
This brings us back to the same question: why twist facts like this? Why should one engage in such blatantly and shamelessly anti-democratic behaviour? The reason is obvious: the only point about which the government is clear is that these measures are being taken to appease “investor sentiment.” The fact that this country’s economic policies are driven by a small handful of powerful financiers is not anything new. But it should put paid to any delusions that foreign retailers or oil price speculators will be “regulated” and their avarice controlled by “safeguards”; after all, when the main reason for a policy to be made is to boost their profits, why would they then have their gains curbed by the very same government?
The best evidence of this, of course, is what has happened with our tax system. In particular, consider the General Anti Avoidance Rules, the taxation of companies based in Mauritius, and the pursuit of those who used tax havens to escape taxation (the best example being Vodafone). Earlier this year our former Finance Minister was supposedly “not able to sleep” over the fiscal deficit; now, all of these measures – any one of which would have yielded more revenue than the entire amount paid to OMCs for diesel – have been shelved. Nor is there any reference to a windfall tax on the captive coal blocks, the most minimal measure required to even begin to address the scam. The reason all this is ignored? Once again, “investor sentiment”, the same sentiment that ostensibly was concerned about the fiscal deficit. Or is it? Clearly not.
Thus it emerges that the point was never the fiscal deficit or benefiting “farmers” and “consumers”. The point is increasing profits for speculators and finance capitalists. And our government will do everything, including ignoring the facts, to do that.