The Hindu Business Line : Haunted by inflation

Slowly but surely inflation is becoming an issue that will haunt the United Progressive Alliance Government in the coming months, perhaps up to the general elections two years away. Already the spectre looms large for the Congress top-brass with Ms Sonia Gandhi citing the key role the price rise played in the party's debacle in the Punjab and Uttarakhand Assembly elections. Politicians, like stocks, operate on sentiments and regardless of the accuracy of Ms Sonia Gandhi's analysis, the fact that inflation has traditionally spoilt many a party's chances at the hustings is pretty much known. That explains the Opposition's flexing of muscles over the general price rise and if the UPA Government has nothing to offer other than budgetary platitudes, the nation can expect a pretty hot summer in more ways than one.

From the Finance Minister, Mr P. Chidambaram's responses to the Opposition on inflation, the Government is already on the back-foot. He admitted in the Rajya Sabha that wheat production is stagnant but was sanguine that prices would soften once the wheat and potato crop came in. His sally that even in 2000-01 the inflation rate was 6 per cent is no salve for people who have witnessed over the last 12 months the fastest rise in any of the inflation indices, never mind that they also saw in the last three years the fastest growth in GDP. The Finance Minister cannot discount the impact of inflation on the aam admi that his government professes to represent, even while claiming credit for the rapid growth. By his own admission the Consumer Price Index for Agricultural Labourers (CPI-AL) and for Rural Labourers (CPI-RL) breached the 8 per cent mark in December last.

So far all the fiscal measures, including imports, have had little effect in dampening prices; perhaps that prompted an Opposition member's remark about the disconnect among the Agriculture, Commerce and Finance Ministries. When the inflation rate was galloping past the 5 per cent mark, there were few signs of a coordinated fight to arrest it. Apart from half-hearted attempts with export/import policies, the Agriculture Ministry has done precious little; the Commerce and Industry Ministry that should have done its bit to temper the rise in prices of manufactured goods has been concentrating its energies on Special Economic Zones.

Both the Prime Minster and the Congress President must realise that inflation control is not the sole responsibility of the Finance Minister or of the Reserve Bank of India. If supply constraints are indeed the cause of the current inflation, then key economic Ministries need to coordinate contingent measures and strategic policies to ensure food security of the kind the country has had. This would require a substantial policy menu not found in the current Budget.