Friday, March 16, 2012

Centrally Planned Citizens in Market Driven Economy

The drama around the railway budget was absurd, if not hilarious. Here is this one man who wishes to put his image at stake to ensure the health of the Indian Railways and what he gets in return is simple - a political middle finger. Mamata Banerjee, the ‘pro-people’ ‘messiah’ of India, shocked everyone by doing something which has no precedence before; protesting against one’s own party’s railway budget. Such bizarre arguments make one wonder whether the Indian population is even aware that from the dawn of 1990s, the Indian economy has positioned itself as a market based economy.

I think the problem lies in the history of Indian economy. I vaguely remember the stories which our history teacher would tell about his childhood and the post independent India. About how they would stay on a queue in front of a ration shop to get ones share of wheat, rice, oil, kerosene etc. The quantities of these goods were rationed (fixed) based on the number of people in the household and the prices were tightly governed by the government. From a macroeconomic perspective, the economy was run in soviet-style centrally planned manner. The five year plans, which were a brain child of Pandit Jawahar Lal Nehru, had a huge impact on the macroeconomic and microeconomic condition of India. Lets fast forward to the early 90s and there we have this Indian economy on the brink of filing chapter 11. Narsimha Rao brings on board a soft spoken economist, Dr. Manmohan Singh, as the finance minister of India. He pushes ahead with a series of reforms and hence started a transformation from a socialist economy to a socialist flavored economy.
Let us fast forward even further to the India of today. I would not dare to call India a capitalist country, but it surely is hugely market driven. Government has exited many of the markets where it shouldn’t have been present on the first place.  There is still way to go with the disinvestment plan. The reason you have so many options while buying a cold cream is because of the reforms of the 90s.

Coming to the current debate of prices, what I fail to understand is the kind of expectations which people have with budgets and government. They still want the prices to be controlled like the old days and don’t realize that India has moved on from that. Politicians are thoroughly responsible for such perception. It seems like a norm that politicians would turn economic illiterates and irrationals, the moment they are forced to sit on the opposition chair. I can vouch for it that a majority of MPs wouldn’t even know the meaning of ‘fiscal deficit’.
Even the media, in its attempt to raise TRPs, portrays the budget as a simplified diktat of the government on what prices will go up and what will go down. The newspapers sum up the budget with excellent infographics on the same.

Price rise is a serious concern and it should be thoroughly debated. I totally understand that even a slightest shift in prices pinch the lower strata of the society very badly. And for this very same reason, we want our politicians and even the media to debate on the issue of price rise in a more rational manner. I would be really proud of the Indian economy when the opposition party would come out and appreciate a bold decision of the ruling government.
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