Steel framed

Economics is about supply and demand. Belatedly, post-1991 reforms recognised this elementary principle and allowed supply-side adjustments to ease shortages, logically leading to end of administrative pricing. However, the mindset of price control runs deep and continues to plague everything other than manufacturing. Continuation of the Essential Commodities Act, minimum support prices and the Commission on Agricultural Costs and Prices are instances, not to speak of several services. Even in manufacturing, BICP Bureau of Industrial Costs and Prices tendencies run deep and every ministry attempts to become a ministry for price control, especially when the minister concerned is a non-believer in market forces. At a time when India finds it difficult to justify existence of a Steel Ministry, Ram Vilas Paswan contributes to more damage.

The UPA is paranoid about inflation, though WPI-based point-to-point inflation is now only a shade above 4 per cent. At FICCI8217;s AGM, the prime minister argued that untamed inflation may hurt growth. Even more certain is the proposition that the UPA8217;s untamed inflation-control policies have begun to hurt growth. If petroleum wasn8217;t bad enough, with oil companies bleeding, we now have steel. Steel companies have hiked prices by Rs 2000 a tonne. This is understandable, since raw material prices, including those of iron ore, have increased and are projected to increase more. If there is evidence of cartelisation and price collusion, that is for the Competition Commission of India to probe. Steel Ministry intervention is illogical. Had Paswan had his way, all steel production would have been in the public sector and prices would have been controlled. Losses would have been bailed out through a steel pool account and exports would have benefited from export subsidies. One might even have contemplated steel rationing to curb demand. Since this isn8217;t possible, steel producers are being arm-twisted into reducing prices by Rs 500 a tonne.

The government still has long enough arms for the stick to work. However, the implications are serious. Investments in steel won8217;t be attractive and planned investments may be relocated abroad, say to China. But with growth and infrastructure investments, steel demand will remain. There was a time when India as a steel exporter was a flight of fancy. Comfort levels will be higher if India turns into a steel importer. Left unchallenged and unopposed, that8217;s the route the Steel Ministry will force the country to take, by distorting resource allocation decisions and conveying false price signals. Reform lessons run only skin deep.