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Mainstream, Vol XLVII, No 50, November 28, 2009

Politics and Economics of Sugar

Saturday 28 November 2009, by Nikhil Chakravartty

The government had an awkward time facing an angry Parliament on the sugar price scandal. Although the adjournment motion could be defeated by the government in the Lok Sabha by the sheer force of its brute majority, it was clear to the members of the Treasury Benches that in the wider arena of general public all over the country has come the perception that not only mismanagement but sufficient black money deals might be involved in it to graduate the scandal into the category of a scam.

If the shortage of onions could lead to the loss of considerable votes for a government in the past, there is certainly no reason for the present government to be complacent about the political fall-out of the current sugar crisis. For a ruling party facing in a few months Assembly elections in as many as ten States—a sort of mini-general election—such a mess may have a serious impact on the fate of the government at the Centre.

Since such there is an understandable reluctance on the part of the government to go in for a thorough probe into the sugar scandal, the public will be drawing its own conclusions about the magnitude of the corruption involved in it. The Food Minister, in public perception, seemed to have held back as long as he could the proposal for urgent import of sugar. And in this, he seemed to have represented, by and large, the interests of the sugar-mill owners, particularly in UP and Bihar.

The close links between the sugar barons and the Congress bosses whether in Maharashtra or in the UP-Bihar region is very well known. It may be worth recalling that in the heydays of radicalist effusion with which Indira Gandhi had clothed the Congress party split in 1969, the demand for nationalisation of the sugar industry was passed by the very first session of the post-split new Indira Congress in Bombay. I suppose most of those present in that gathering, particularly those from UP, Bihar and Maharashtra, knew that ultimately the ruling party could hardly afford to ditch their sugar daddy.

It is, therefore, nothing unorthodox nor surprising that the Food Minister of the Government of India should have a hand-in-glove relationship with the sugar barons. Obviously, the withholding of imports would have kept the market under their control, and thereby they could have dictated or manipulated the prices to their advantage.

What has come as a real surprise has been the stand of the Finance Ministry. Obviously, it was for import of sugar. And it pressed for OGL (Open General Licence). That meant that there could be no administrative or legal restriction on the import of sugar. In their present craze for waving the green signal for the private sector, the pundits of the Finance Ministry, who certainly wield a lot of clout as the architect of our current economic revolution, forgot the very simple common sense principle that if you let the free market operate, then forget about controlling the prices. There could be no question of any control over prices once an item is permitted to be imported on unimpeded OGL.

The key question in the sugar crisis so far as the public is concerned—and that’s where it impinges on political fortunes—is the question of prices. It was not that sugar was not available, but it could be purchased by the consumer at an exorbitant price. To think of OGL for sugar import as a solution to the sugar crisis is to forget the very thrust of the government’s political stake in the availability of this essential commodity.

What the wise men in the Finance Ministry forgot was the very history of price-control of essential commodities in this country. This was not a contraption invented by Mahalanobis, the acknowledged bete noire of the Manmohan brigade of today. The entire system of control over supply and distribution of essential commodities was introduced with drastic administrative measures by the British Government in this country during the World War when the operation of free market brought about a famine in Bengal in 1943 in which thirtyfive lakh people perished by the government’s own estimate.

Those of us who covered that ghastly calamity could see how that famine was brought about. There was shrinkage of the food crop in Bengal, partly created by the British Government spreading its mammoth war machinery—scores of Army concentrations and airfields dotting the countryside, disrupting the rural economy. Military roads were opened up at top speed, and the coastal districts of south Bengal were put under the so-called denial policy by which lakhs of acres of arable land were left untended as the local population was marooned or pushed away and all the boats, the only means of communication, were seized so that the enemy would be denied the use of them. Over and above all this, the government requisitioned grain from the peasant for the armed forces at the time. Inevitably this shortage led to the shooting up of prices. Overnight, hoarding became a profitable business, and not only the local traders but big business interests entered the market. The names of Ispahani and Ranada Saha became well-known in this game of hoarding and profiteering.

This way a man-made famine was created before our very eyes. The person who convincingly brought this out with a mass of data was no other than Professor P.C. Mahalanobis. In fact, this was perhaps the first occasion when Mahalanobis tackled a problem of direct economic import for the country. The alien government would have cared little as Death stalked Bengal’s green and pleasant fields. But the calamity came as a direct obstruction to the Allied war plans. As Calcutta and the district towns were choked with lakhs of men, women and children driven by the agony of hunger and death, the countryside was in a shambles. All this directly threatened the breakdown of the war-machinery of the Allied forces, apart from intensifying the tension and bitterness of the local people. In fact, it was during those dark days, an unprecedented mass movement for anti-hoarding and famine relief surfaced even though most of the Congress leaders were behind bars with the 1942 ‘Quit India’ Movement.

It was at that critical juncture that the British Government urgently imported foodgrains from Australia. There is a reference to this in Churchill’s correspondence to Roosevelt on April 29, 1944 in which he explained that

a satisfactory situation in India is of such vital importance to the success of our joint plans against the Japanese that I am impelled to ask you to consider a special allocation of ships to carry wheat to India from Australia…..

It was this joint Anglo-American arrangement that not only managed food imports but set up the machinery for distribution to the public. The British authorities and their American collaborators realised that the mere import and pumping the stock in the free market would by no means help to get over the shortage as the prices would shoot up. The present writer recalls how the American official representative in Calcutta at that time, one Clayton Lane, gave him the first indication of how the machinery of food rationing was being set up in the immediate aftermath of the great famine. With rationing came the entire machinery of the public distribution system.

After independence, this was set aside for sometime when Rajen Babu and after him, Rafi Ahmed Kidwai, insisted on free trade in foodgrains. However, the rationing and public distribution network in urban areas was never totally abandoned. It was reactivated with the food shortages in the late sixties and has continued ever since. In a sense, A.K. Antony can trace the origin of his civil supplies portfolio to those crucial decisions taken by the Anglo-American authorities fifty years ago.

What is the lesson one draws from that searing experience of the famine and its aftermath, particularly the infrastructure that was set up to meet that calamity? The plain and simple truth is that no shortage of any essential commodity could be met by just the mechanism of free market economics. The state has to intervene to ensure price control and fair distribution. If this lesson was clear as daylight to Churchill’s boys fifty years ago ruling over an alien people, how is it that the administrators of finance in a elected government of independent India prescribe OGL for a scarce commodity? Such mountebanks, passing off as experts, serve neither the public of this country nor the government which has hired their services. The political price of their folly may damage the interest of the government. The high price of sugar may very well cut into the votes for the ruling Congress at the hustings.

(Mainstream, June 18, 1994)

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