High Inflation comes to haunt  the Government!

Coalition politics to populist policies lead to inefficient economic management?

To borrow a historic phrase from Karl Marx, “the spectre “of inflation is assuming serious dimensions! There is an intriguing silence at the top. Everyone is clearly worried and we assume there is  desperate action, though behind the doors.

Inflation is a subject of economic theory and we are sure Dr.Manmohan Singh, as a student of economics, must have learnt early in his career what inflation is all about. We can’t say the same thing about the Finance Minister Mr.P.Chidambaram. Perhaps, the FM is  not a professional economist as his  Prime Minister is and so as a FM he must have got a grip of the subject, we assume, from his more trained professionals and bureaucrats. The competence of the government in reining in inflation is under close watch by “friends” and “enemies”. High politics and high economics are  hot subjects that everyone is having his own calculations. While the ruling party coalition might be sitting on tenterhooks, even the Congress allies might not nurse all the good feelings for the government to succeed. More specifically, the PM and FM also might have their own well-wishers as well as detractors. That is what politics is all about!So, what we have got now? This uncontrollable inflation at  6.58 per cent?

Dollar inflows are cited as one cause. So, RBI is “mopping up dollars so that rupee does not strengthen against the greenback beyond a point”. RBI is doing its duty as per the known rules of the game, at what point RBI intervenes to prevent further appreciation of the rupee is based on the judgement of the central banker. There is a limit to everything. If further the rupee appreciation is allowed then it might hit our exports, more so the IT exports over which our entire growth story is built. Rupee has to  be kept at 45 against the dollar, it is allowed to  strengthen  in nominal terms, to say Rs.44,as had happened  last week, the combined effect can be more than we imagine.

An Inflation is a troubling subject for economists at any time. As for the economists turned politicians, inflation at a high rate of 6.58 per cent for the week ending Jan 27 it is a real embarrassment. Yes, even the editorial writers are more circumspect  not to embarrass the government. You have to search for the real figure through some dense writing and the English language in the Indian newspapers is just obliging as well.

When the Singh government took over it was around 4.7 per cent. To explain inflation by economic terms is just as difficult as it can bear as many explanations as there are economists. Some are plainly pro-inflation driven economic growth, some conservatives and some plainly anti-inflation. But the post-Keynisian economic wisdom is that it is a bit good for any economy to have some “reasonable” inflation rate to drive the economy forward, otherwise, there would be all-round trouble. So, the inflationary pressure, yes, it is a pressure that should wake up and  make the government work towards some real strategies.

But what is really hurting the common man’s common sense is that the Finance Minister has run out of all options and he harps on certain measures which are not other than what the RBI is proposing. But even the RBI measures are not seen working. Money supply used to be held the villain and control of money supply used to be one obvious option. Now, credit growth and also shortage is essential food items are seen as the cause. So, there is a rush to slash duties on wheat import, now new duty cuts on import of pulses and edible oils. Wheat prices have gone up by 11.74 per cent. Pulses prices by over 22 per cent. Edible oil by 11.60 per cent. Even there is a price rise of manufactured goods, so import duty on of capital goods is slashed. Duty free import of wheat, pulses and sugar continue from last year along with a ban on their exports.

Inflation at a high rate is a cruel tax on the poorer sections whose food items are made intolerable and the result is that the poor would vote against the government and this can be seen from the battering the Congress party had received from the Mumbai voters. What is a cause for panic is that the  Punjab and the coming UP Assembly elections might punish the ruling parties in a more damaging way. That is how inflation and democratic vote become intertwined.

Of course the Opposition might make  it a great opportunity to drum up against the incumbent government. Urban slums and the rural poor would rise against the government if certain developments don’t take place from now and the election time. Everyone doesn’t have a clue to the short-term measures. Even the highly competent team of the Economic Advisory Council to the PM has been oblivious about the sudden spurt in prices, as they were only cheering the Pm on the prospects for a 9 per cent growth of the GDP. But now, what corrective measures are to be taken? There is no clear way, it seems. The Finance Minister, a true amateur, true to his brash manner is only harping on the 9 per cent growth but has no clue when it comes to control the inflation rate.

The long-term plans everyone seems to know but have no courage of conviction. The need to raise agricultural production and productivity is agreed by all concerned. But who would bell the cat? With what conviction the PM can open his mouth? As it is, we see there are  another record number of farmer’s suicides in Vidharba and the latest in the first 40 days of the New Year is 100 farmers ending their lives.

The PM’s so-called package is not working at all, it seems. The Maharashtra  Finance Minister Jayant Patil revealed that the Central Government  has only released only a fraction of Rs.24.8 billion as against the promised Rs.294.1 billion PM’s aide package of July 2006.Why?No one has a clue. The total promised amount is more .This is just for completing the irrigation projects in Western Vidarbha. This amount is to cover additional O.15 million hectares of the total 3.5  million hectares of cultivable area. Curretnly, the area under irrigation is O. 45 million hectares.

According to Amravati  divisional commissioner S.R.Goyal, monetary provision for micro-watershed development that provides  an answer to the agrarian distress is inadequate.’ The farm distress will continue as long as the approach to the agrarian management remains flawed”.

The persisting agrarian crisis is only one part of the story. The other parts are  the result of the  sort of coalition politics that  has given rise to blatant populism  that marks some of the Central government schemes like the rural employment guarantee scheme. After the high profile Sonia Gandhi led  advisory council that saw a flurry of activity and the legislation, we see now just the reverse. Sonia Gandhi seems to be simply fed up, she doesn’t care to speak about her pet schemes anymore nor do the erstwhile members, some of the clearly highly dedicated, seem to care for pursuing their commitments in an open way.

So, we, the people at the far end of the spectrum don’t get to know the fate of some of the well-meaning schemes. Just the employment guarantee scheme, we read in the press that even the village where both the PM and Sonia started it, in AP, the actual progress today is far from satisfactory. The scheme seems to have been almost as good as given up. Even 50% of progress is not reported. Nor the PM seems to care to highlight the need for monitoring the various schemes that are of great importance for the poor at the grass roots. So, with no assured incomes at the bottom, the shortages of essential articles only accentuate the crisis, the price rise, the inflation are the cause. This is the plain common sense view of inflation, right?

On the other hand we see the rampant  and highly irresponsible populism at the state level, as in TN. The various populist schemes at the TN, like selling rice at PDS at a ridiculously low Rs.2 per kg, for both the BPL/ABL categories. There is no economic rationale for confusing the public as well as the policy makers in other states and at the Centre. Freebies of so many non-essential items like free colour TV sets, free distribution of land etc are plainly counter-productive. Economics is a serious subject and we have to adopt some uniform economic logics, economic pricing of some essential commodities like vegetables and sugar and edible oil. Otherwise, you distort the economy, also contribute to hoarding and over-stocking, smuggling and other such activities that no popular government like to intervene and earn public displeasure.

The GDP estimates show clearly where the economy is going wrong. While the services and manufacturing are growing reasonably well, it is the agri sector that shows a disappointing performance, it has just struggled to grow at 2.7 per cent only. And in the face of such enormous pressure on all the essential items of mass consumption, rice, wheat, edible oils, sugar and vegetables. Pulses’ prices gone up by 28 per cent, urad and tur, more preferred items in north India, zoomed  by 40 per cent! Instead of attending to the actual farmer’s problems, the state agri dept is asked to engage itself in reclaiming wasteland and distribute it in one or less acres each to a family and also engage the state machinery to enable the landless to cultivate crops!

Those who know the realities at the grass roots, know well, the  landless, the old, that is older than 60 years, even though physically fit and they are engaged in manual labour are now paid a pension of Rs.300 each. In every village in TN, there is a monthly post of some say 20 or 30 MOs, brought by the post man and the money is shared with the post man,Rs.10 each paid to him, he makes a cool Rs.3,000 every month as a commission! Besides various other freebies!

What sort of economic management of the state revenues this sort of schemes would lead to. Plain economic inefficiency only. So, on the one hand you talk of economic growth, then on the other you witness the high inflation rate. Then, you also don’t monitor the various development schemes. You just seem to be tired and just hang on for the next election to come, just after the mid-term is over! 

The immediate cause for concern is the humble man’s consumption items, the electoral politics commodity of onion prices. The onion prices and tomato are all hitting the roof and might contribute to mass disillusionment, the poor might vote against the ruling party, more so the Congress candidates in all the coming elections. This is so in all poll-bound states like Punjab and UP. There are reports in the two states the onion prices are too high. Onion prices are monitored by the press in all the capitals of the three states, Chandigarh, Lucknow, and at Agarthala, Manipur and the prices are causing much worry for the politicians.

The big questions of FDI or SECs might not be election issues for the common poor voters. For them it is the prices of essential items. And who said that inflation is all about high economic abstract policy making? No, it is just a matter of life and death, the high prices of atta, sugar, vegetables and edible oils, these essential commodities rule the roost, in the end!

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