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Mainstream, Vol XLV, No 39

UPA Government : Ominous Moves

by Observer

Tuesday 18 September 2007

As the ruling Congress-led UPA coalition and the Left parties still supporting it from outside hold the first meeting of the committee set up with External Affairs Minister Pranab Mukherjee as the convenor to discuss the ramifications of the Indo-US nuclear deal in the backdrop of the Hyde Act, a US national law, several disturbing developments in the functioning of the UPA Government on the domestic front have caused serious concern.

The first relates to the wheat import scam. One estimate suggests that the government spent Rs 10,000 crores on importing wheat in two years and the BJP claims this figure is double the rate at which it gave minimum support price to the farmers. The fact of the matter is that the government, specifically the Union Agriculture Ministry, is to be squarely blamed for the manner in which it handled the wheat import issue: orders for imports given in May were cancelled as the government in its wisdom found the prices to be too high; but in September it decided to import wheat at an even higher price. It is in this background that the BJP’s allegation that the government has been in collusion with multinational grain importers like Cargill, Glencor etc. cannot be summarily brushed aside especially when the Opposition buttresses the accusation by saying that while Cargill purchased good quality of wheat from Indian farmers at Rs 8 to Rs 8.50 per kg, the Indian Government was forced to place orders for wheat imports with Cargill Inc. at Rs 15.97 per kg; additionally it is alleged that the wheat being imported is barely fit for human consumption. In the light of these charges there is sufficient strength in the argument that the government is helping the farmers in the US, Australia and other states from where it is importing wheat to the detriment of the Indian farmer whose plight is indeed alarming. The government had exported 12.4 million tones of wheat between 2001-02 and 2004-05; yet when wheat production increased from 69 million tones in 2005-06 to 74.82 million tones in 2006-07, the government’s procurement of wheat declined to 50 per cent of the amount procured in 2003-04 thus necessitating imports to the tune of five million tones per annum in those two years (2005-06 and 2006-07). The matter cannot be taken lightly; it warrants a detailed probe.

THEN there is the case of sudden slashing of export duty on iron ore. In his Union Budget, presented on February 28 this year, Finance Minister P. Chidambaram announced the imposition of a duty of Rs 300 per metric tonne on the export of iron ore; but within a little over two months the same Chidambaram declared on May 2 that the export duty on iron ore fines with ferrous content of less than 62 per cent would be reduced to Rs 50 per metric tonne while export of iron ore fines with a higher ferrous content would continue to attract a duty of Rs 300 per metric tonne. Incidentally, following the announcement of the export duty of Rs 300 per metric tonne, Chinese industries threatened to boycott the use of Indian iron ore arguing that after the imposition of the duty it had “no price advantage” over Brazilian and Australian iron ore. As Minister of State for Commerce and Industry Jairam Ramesh told the Lok Sabha, both the China Iron and Steel Association and the China Chamber for Import-Export of Metals, Minerals and Chemicals had expressed “concern” over the rise in Indian iron ore prices; thereafter the export duty on iron ore was slashed.

When the announcement of the export duty on iron ore came in the Union Budget, the Finance Minister had explained that this was done with the twin objective of “conserving” the mineral and “raising some revenue”. While disclosing his decision to slash the duty, he said: “The total exports are only 10 million metric tonnes of iron ore fine with less than 62 per cent ferrous content which we want to go out of the country. The remaining will be conserved within the country.”

But there is more to it than meets the eye. There are reports that the reduction of the export duty on iron ore was meant to influence voters in the Goa Assembly elections—the decision was intended to help the mining industry which reaps more revenue than even tourism in Goa. This is the considered view of some civil society activists in the State and they have filed a petition against this flip-flop. Incidentally, the Japanese company Mitsui, which had a majority stake in the Sesa Goa Mining Company, sold its stake to the Anil Agarwal-owned Vedanta Group as it found its investment unviable after the increase in duty (that would have caused a loss of Rs 300 crores per annum to the company). But within a few days of the transfer of shares from Mitsui to Vedanta the duty came down to Rs 50 per metric tonne. This is being attributed to the influence wielded by the Vedanta Group: the close relationship of the Group’s top owners with some of the country’s top politicians. In fact this relationship cuts across the political divide: during the NDA rule, the Vedanta-owned Sterlite company bought a majority stake in the public sector aluminium firm BALCO and it is making all efforts to acquire the rest of the stake from the Union Government.

The Finance Minister’s decision runs counter to the Steel Ministry’s plea for conservation of iron ore which, it is convinced, is essential to meet the target set in the National Steel Policy 2005 and is thus demanding a cap on iron ore exports. It is in this setting that JD(U) President Sharad Yadav, a former Union Minister, has written to the PM urging for his immediate intervention to “save the natural resources of the country”; he has also pointed to the need for a closer examination of the decision since as a consequence there will be a loss of Rs 1000 crores to the exchequer. In his letter to Manmohan, Sharad further questions the “urgency” of slashing the duty at a time a Group of Ministers, headed by Union Home Minister Shivraj Patil, was already looking into the issue.

Chidambaram, alongwith Commerce Minister Kamal Nath and Planning Commission Deputy Chairman Montek Singh Ahluwalia, has also been in the forefront of the move to ensure the entry into India of foreign retail giants like Wal-Mart, Tesco and Carrefour. Totally indifferent and apathetic to the effect of such a move on small and marginal traders, these “liberalisers” are intent on going ahead on this score since, in their view, retail is the country’s “next growth engine”. But they, notably Chidambaram, have been prevented from carrying out their pet project, at least for the present. Several Congress members and leaders have spoken out against the move. As a result party President Sonia Gandhi initially gave the “go-slow” signal in the matter at the conclave of Congress CMs where she also brought out the concerns over diversion of agricultural land for non-farming uses like SEZs. However, lately she has candidly asked the PM to stop the entry of foreign retailers till further clarification. Her concerns stem from the realisation that coupled with the growing discontent over inflation and rising rates of interest, the unrest against SEZ and FDI in retail would pose a major challenge for the UPA administration.

The agenda of the “liberalisers” who want to move on a fast track is fraught with serious consequences. Combined with rising tension in the rural areas as well as persisting suicides in the countryside (the parliamentary Standing Committee on Agriculture has informed that as many as 11,782 farmers committed suicides in the past five years—a fact that recently evoked a cruel joke on the part of a UPA Minister with the full indulgence of the Maharashtra CM), this agenda can spark a major conflagration which the nation cannot afford to risk—and it will be political harakiri for the Congress if it treads along the Chidambaram-Montek course prior to the impending parliamentary elections.

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