The Hindu Business Line : Tilting at cartels

In a situation where the price rise in select commodities is a reflection of the demand-supply mismatch, augmenting the supply is the only way forward.

The latest instance of the Finance Minister accusing the steel and cement industries of forming a cartel to fix prices and, the very next day, the Minister of State for Steel denying any evidence of cartelising behaviour, must rank as an exceptional example of the arms of the Government taking diametrically opposing positions.

The Finance Minister, Mr. P. Chidambaram, is convinced that the steel and cement companies are colluding among themselves to fix prices. Leaving aside for the moment the fact that such a claim virtually amounts to an indictment of a public sector behemoth in the steel industry, the broader question is whether such a threat of administrative and legal measures is the best response a government can offer to a rampant rise in the prices of these two commodities. The threat of administrative measures is a throwback to the era of stocking and price controls that benefited neither the consumer nor the producer. The legal measures contemplated could well be doomed given the difficulties associated with establishing cartelised behaviour in a court of law. The cement or steel producers are not exactly consumed by a death wish that they would want to commit themselves in writing about setting prices for government inspectors to seize, flaunt before the judge and secure a ‘guilty’ verdict.

Of course, inflation even in industrial commodities such as steel ends up hurting the common man, which is why the government ought to search for swift remedies. But the Government has only itself to blame for not waking up to the emerging pressures on the supply side even as demand was being driven up by a burgeoning economy. Project after project has been caught up in controversies that have delayed execution. There are disputes on raw material linkages, concerns over environmental impact and over the livelihood of those affected by a new project. The sad fact is that the State had been either indifferent or simply unable to intervene and mediate on these disputes so as to get the projects off the ground. Overcoming a deficit in governance is an arduous challenge even with the best of political will, something that the present ruling arrangement badly lacks. But the country needs to travel down this path rather than place faith on the efficacy of price and distribution controls in commodities. In a situation where the price rise in select commodities is a reflection of the demand-supply mismatch, augmenting the supply is the only way forward.

Related Stories:
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