The Hindu Business Line : Confusing medley of alibis

Ever since the unrelenting rise in the inflation rate began a couple of months ago, there has been a flurry of explanations which have left the lay public wondering whether those bearing the responsibility of containing it are clued up at all on this matter.

The Reserve Bank of India (RBI) Governor, Dr Y. V. Reddy, who had on June 6 last year expressed optimism of keeping it under control, backtracked on April 16 by admitting that inflationary pressures turned out to be more intense than anticipated.

Curiously, he passed the buck for the real tough measures on the Government. “The government has to demonstrate” said he, “that it’s trying to do something. If the government is not able to find medium-term solution, they have to at least show the sensitivity to the problems.”

Capping it all, announcing the Credit Policy on April 29, he once again exuded confidence, just before the figure jumped from 7.33 to 7.57 per cent, stating that the three-pronged strategy of fiscal, supply-side and monetary measures would bear fruit and inflation would moderate in the next two-three months.

Jumble of figures

The Finance Minister, Mr P. Chidambaram, in the troubled scenario, has shown himself to be a pastmaster in the art of making the heads of listeners reel by reeling out a jumble of figures which leave them no wiser than before. Just hear this: “Even the average inflation rate of 5.4 per cent in 2006-07 was high which required to be brought down to 4.5 per cent. But this must be seen in the context when average inflation was 5.9 per cent in 1998-99, 7.2 per cent in 2000-01 and 5.5 per cent in 2002-03, while the peak rate of inflation in all these years were 7.3 per cent, 8.8 per cent and 6.9 per cent, respectively. During 2000-01, inflation ruled at over 6 per cent for 48 weeks and 8 per cent for 12 weeks.”

So, where does one go from this plethora of figures?

He gave five reasons for the rise: Worldwide increase in commodity prices with metal prices going up last year by 11 per cent; supply-demand mismatch of essential goods of mass consumption; growing public expenditure during the past three years when the government had to justifiably undertake several social sector programmes of education, health and rural development as per the mandate of the National Common Minimum Programme; stimulation of higher demand for goods and services and rising consumption with the higher rate of growth of GDP; and large capital inflow in the form of foreign direct investment, foreign institutional investment, remittances, private equity, export earning, and external commercial borrowings, which have increased the money supply in the country.

Shaken public confidence

The problem with this beguilingly convincing analysis is these factors that have taken hold of the economy look like being operative for as long as one can foresee. Does it mean that we should prepare ourselves for a fairly longish spell of high inflation?

But no, says the Chairman of the Prime Minister’s Economic Advisory Council, C Rangarajan, on May 3. In his view, inflation is expected to come down to around six per cent in the next three months, although five per cent is not a possibility in the immediate future.

He is sure that good monsoon season, adequate procurement of foodgrains and recent measures taken by the RBI would check inflation.

Public confidence in policy-makers took a beating when all of them jubilantly proclaimed the end of any further rise when inflation dipped by a few decimal points to 7.13 only to look confounded when it rose to an unprecedented 42 month high of 7.57 soon thereafter.

May be, astrology will be a surer guide.

B. S. RAGHAVAN