‘Cutting Food Subsidy To Reduce The Deficit Is Reprehensible’

Economist and political commentator Prabhat Patnaik, currently vice-chair of the Kerala Planning Board, is a strong critic of the government’s economic policies. In 2008, Patnaik, who has taught at JNU since the 1970s, was appointed to a four-member team of the UN to recommend reforms to the global financial system. In an interview with Pragya Singh, he attacks Pranab Mukherjee’s budget and questions the government’s commitment to remove inequalities in society. Excerpts:

In what ways are the UPA-I budgets different from the UPA-II budgets?

UPA-I depended on Left support. Its budgets could not press ahead with the neo-liberal agenda. On financial liberalisation, opening up retail trade, “labour market flexibility”, disinvestment, and privatising PSU banks, the Left put up stout resistance. Simultaneously, the Left, with progressive sections within Congress and the NGOs, pushed through important legislations like NREGA. Some progressive steps, some small steps towards neo-liberalism—products of an underlying tussle—characterised those budgets. With UPA-II,  there is a brazen attempt to push the neo-liberal agenda and enlist upper middle-class support for it. The reduction in direct taxes, even as diesel prices are raised and food subsidies cut, to the detriment of the poor, in the midst of food price inflation, is indicative of this Thatcherite strategy. But it is doomed. Unlike Thatcher’s Britain, the upper middle-class here is relatively small, while victims of neo-liberalism are in an overwhelming majority.

Are budgets mere financial statements—no longer political? Does anyone outside Delhi care?

On the contrary, the budget is more of a political exercise than ever before. A massive effort is being made to shift the basic nature and orientation of our economy, by unleashing what Marx had called “primary accumulation of capital”, i.e. destroying the peasant, small producer and small trader base, and letting corporate capital and MNCs take over. The budgets, engaged in this gigantic task, are highly political. They are so political that they try hard to pretend they are not. This shift in the orientation of the economy affects people outside Delhi far more than it affects Delhi. Take the latest budget. The diesel price hike will have a far more adverse effect on the fishermen of Kerala or the peasants of Andhra Pradesh than on much of Delhi.

The government has advocated tighter purse-strings, fiscal prudence and lower subsidies. Is there an alternative?

During an economic slowdown, far from tightening purse-strings, the government must spend more. Enlarging the fiscal deficit for this is perfectly justified, which explains the “stimulus package”. But even under these circumstances, government expenditure financed by wealth taxation is preferable to fiscal deficit, since it keeps down wealth and income inequalities. Those who talk of “fiscal prudence” are not concerned with inequalities, and never advocate taxing the rich to reduce deficit. They want government to spend less and balance what it spends by taxing the poor.

Curtailing deficit by reducing food subsidy or restricting pds is the very opposite of what we should do. It amounts to appeasing financial and corporate interests by hurting the poor. Overcoming the current food price inflation requires supply management. It requires extension of pds, indeed its universalisation, and hence a corresponding increase in food subsidy. Cutting food subsidy, as the latest budget has done, is in my view reprehensible. And so is the cut in fertiliser subsidy in the context of prevailing farm practices.

The argument against large social sector projects such as NREGS is that they haven’t worked as well as they could....

To say that they have not worked as well as they could is no argument. I have travelled extensively in Kerala looking at NREGS projects and can vouch for the tangible benefits they have brought to the poor. Of course, there may be corruption, but that has to be dealt with separately. Abandoning them because of this would be absurd. NREGS is a rights-based programme, not an act of charity. Any dilution would amount to an attack on people’s rights. Nobody should have the temerity to interfere with the essence of NREGS, which is why I find this talk of replacing it disturbing. A direct cash transfer is not rights-based and hence not universal. The NREGS, though only for rural people, is universal for them: a millionaire, if he registers and applies for work under NREGS, has a right to employment. Cash transfer by its nature is targeted, which means government can arbitrarily limit the number of beneficiaries, either by fiat, or, indirectly, through spuriously low poverty estimates.

Is creating employment the biggest issue today? What can the budget do?

Yes, it is. Poverty is linked to existence of unemployment and underemployment. The unemployed and underemployed keep wage rates of the employed tied to a subsistence level, while they themselves earn even less, which explains poverty. Under such circumstances, labour productivity increases lead to a rise not in wage rates, but in the share of surplus. Hence, a rise in inequality is built into the process of growth, as long as it does not lead to exhaustion of labour reserves. Such exhaustion requires not minor budgetary changes, but a change in the development trajectory.

What measures could ease the distress in the farms?

In the post-independence period, the state protected, promoted and nurtured peasant agriculture against world market fluctuations, corporate capital and MNCs. Not that peasant agriculture remained in its pristine form; there was a tendency towards capitalist development with both landlords and rich peasants turning to capitalist farming. But it arose from within agriculture itself, not from encroachment by big capital from outside. Neo-liberalism has meant a withdrawal of state support to peasant agriculture and opening agriculture to corporate capital and MNCs. This is at the root of peasant distress: their costs have gone up, even as they have got exposed to world market prices and direct dealings with MNCs.

Their distress can be alleviated by the resumption of state support for peasant agriculture. Protection from world price fluctuations, reviving the Commodity Boards, institutional credit support to peasantry, remunerative prices through public procurement, resuming government extension services, keeping corporate capital and MNCs out of agriculture, extending pds in the countryside (since the majority of peasants are net foodgrain buyers), public investment in rural infrastructure and irrigation, and launching a large-scale research effort. But these steps entail going back on the neo-liberal agenda.

Peasant agriculture-led growth will also break the vicious circle of poverty and unemployment, since the demand pattern arising from such growth is typically for employment-intensive products. But this growth will have to be broad-based, for which egalitarian land reform is a must.

There are demands to further liberalise banking, insurance and retail. Would this amount to a failure to protect domestic industry?

Such liberalisation will further accentuate the divide in our society. Opening up retail will mean displacement of petty traders by big corporate and MNC chains, which will be net employment-destroying. Opening up banking and insurance will mean ending social control over finance. It would mean a shift of end-use of credit from productive spheres to consumer credit and speculation, a shift of focus from the national economy towards the global economy, and of direction from the peasant and small-scale sector towards large-scale and affluent borrowers.

It will worsen the condition of peasants and small producers, pushing them further into the arms of moneylenders, raising their cost of credit and making them more prone to dispossession and destitution. It will also make the domestic economy vulnerable to the caprices of international speculators. India has been immune to East Asia-type financial crises, and has escaped the current crisis precisely because its financial sector has not been opened up. (Its banking sector, having only 7 per cent foreign assets, was not troubled by “toxic securities”.) But this immunity will go if it “opens up”.