Apr 292008

Inflation is not a new phenomenon in India. Every time there is more money in the market, more people chase the goods which do not keep pace with the demand. Some time, traders hoard certain commodities to create scarcity with the purpose of increasing their unearned profit. The government does interfere at times. But its machinery is so corrupt and so effete that such efforts do not deter hoarders or profiteers. I recall when Lal Bahadur became the prime minister – I was his press secretary – he said at his first press conference that the topmost task before him was to check food prices to bring down inflation. He succeeded to some extent but the steps were too puny in the face of escalating inflation.
Again, PM Indira Gandhi tried to check prices when she devalued the rupee. She personally met leading industrialists to persuade them not to raise the price of their products because of the burden it would heap on the common man. They deferred the increase by a month or so to placate her. They were helpless because the cost of raw materials and services had gone up. In fact, inflation galloped during her time, ultimately eroding her political support in the country. The common man who was assured that she would oust garibi was disillusioned and voted against her Congress party when elections were held.
More recently, the BJP which led the NDA alliance at the last polls was defeated because the party’s slogan of “India Shining” was essentially on paper. Inflation was rampant. The countryside had suffered the most. The urban rural divide was more pronounced than before. It was apparent that the opulence seen in cities had not touched those at the periphery. Villagers had their revenge when the opportunity to elect a new parliament came. The BJP failed to form the government.
Andhra Pradesh during Telugu Desam rule is the biggest example to show how the improvement of infrastructure in cities does not impress people in the countryside. Hyderabad was dazzling because the government spent money liberally on building flyovers, broadening roads and beautifying the city. But only 70 metres away from Hyderabad, villages wallowed in dismal poverty. Prices rose in Hyderabad as well. But here people had the benefits of growth which lessened the rigours of inflation. The countryside did not come in the picture. The propaganda of “Rising Andhra Pradesh” only angered the voters outside Hyderabad and other cities in the state. They ousted the Telugu Desam with a vengeance.
Having seen the fate of NDA, the Manmohan Singh government was careful and kept a watchful eye on inflation. It took remedial measures whenever there was a rise in the price of certain commodities. However, for the past few months the government seems to be losing the battle. True, the oil bill has increased abnormally, a barrel touching $100, increasing the price of petrol and diesel by nearly 20 percent in the last four years. But that is not the full story. The government lacks imagination and dynamism. It has not taken any measure to check inflation because it is divided between slow growth and increase in money supply.
In fact, inflation will go up further now that the government has put more money in the market, roughly Rs 60,000 crore for farmers’ benefit and the recurring expenditure of Rs 19,000 crore on government servants. The ruling Congress party has admitted that it would be a political challenge to curb inflation. The government, in view of general elections, will try its best to bring down prices. How is the big question?
Food subsidy is the biggest problem before it. When wheat and rice crops have fallen short of the estimated production, the situation cannot be but grim. Reports so far suggest that the food grains are not available abroad because more wheat has been diverted to the feedstock. Food Minister Sharad Pawar has said that India will try to import three million tons of wheat to build up the buffer stock. But his dealings are so mixed up with underhand means that what kind of wheat will be imported is not known. The imports last year were not eatable as many states, particularly Himachal Pradesh, complained to the Centre.
As opposition leader L K Advani has said that the main issue in the next election will be the price rise. Elections held in some states in the last few years show that price rise has been the main talking point by the opposition. What is feared is that the Congress may not do much to accelerate the moderate growth rate on which the country has fallen these days. A slowdown in economy does help in moderating the prices of manufactures. But then the promised growth rate of 9-10 percent becomes impossible. This has its own fallout.
Slow growth can be corrected through softer interest rates. But it will have its own implications. The problem before the ruling party is to improve its prospect at the next elections which may well be in October-November this year. The inflation at 5.92 which is bound to rise may scare away the voters from the present government. The NDA was defeated because of the “India Shining” slogan. The UPA may be in trouble because it has given the people an impression that it would not allow prices to rise and nor would it let the growth rate suffer.
E-mail: knayar@nation.com.pk

Source: The Nation, 29/4/2008

 Posted by at 7:08 am

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