The Hindu Business Line : The Finance Minister’s transformation

Since the beginning of 2008, inflation concerns have stayed heightened and, more recently, inflation has been rising week after week, threatening to breach the 12 per cent mark. Again, since early 2008, the Finance Minister, Mr P. Chidambaram, has been making statements from time to time on inflation numbers, his take on their possible changes, government efforts to contain the price rise, and so on.

The Minister’s statements over the last six months and gradual changes in his tone and tenor provide interesting insights into the clear transformation of a once self-confident minister into a sober philosopher seeking sage advice, having been defeated by market forces and a slew of policy measures that have proved wholly inadequate. It also exposes the utter lack of commercial intelligence and price outlook, especially relating to commodity markets, within the Government.

‘Temporary phenomenon’

It all started early this year with a familiar reaction to inflation. “It is a ‘temporary’ phenomenon”, we were told. Complaints of rising prices were brushed aside with the brusque response that it was temporary and would subside soon. In some sense, the Finance Minister was trying to console the suffering aam aadmi. But the prices did not stop rising.

A few weeks later, with the rise in prices remaining unabated. Mr Chidambaram’s explanation then was that inflation was a global phenomenon. He compared inflation numbers in India with those of several other countries to ‘prove’ that poor Indians were no worse off than many others. He was merely suggesting that poor Indians were not alone in suffering inflation, even their brethren in rich countries were facing the problem. Again, prices did not stop rising.

Some time in March/April, crude prices started to climb rapidly. A rising crude market sent negative signals to the economy. As universal intermediates, high fuel prices affected production and distribution costs, leading to further rise in inflation. The energy market provided the Minister with a ready excuse to explain away the sharp increase in prices of food and metals.

By May, things were really getting out of hand. Several fiscal, monetary and administrative measures that were progressively imposed failed to douse the price conflagration. By then, Mr Chidambaram had perhaps become less sure about the efficacy of his medicines. “We are taking action”, he asserted repeatedly, adding that the results would soon be visible.

Climbing faster

He was actually providing a palliative to people. Weeks passed; and, yes, results were visible, but not what the Minister had hinted at. Indeed, inflation started climbing faster than many could imagine.

A few more weeks and it was clear that inflation would not come under control any time soon; and, therefore, the timeline for inflation control would have to be shifted. “Inflation will be contained after September,” was the refrain.

September is when the country’s kharif crops get ready for harvest. Seasonally, agricultural commodity prices begin to soften under the weight of heavy market arrivals. So, the prognosis of lower prices in September had nothing to do with government’s actions. The Minister was merely buying time.

More recently, with no relief from high prices and the political scene really hotting up for the government, there has been a drastic change in the Finance Minister’s stance. It looks like he has mellowed. At one stage he pleaded: “What can we do?” He has also gone on record that he was willing to accept suggestions from anyone, something he is not generally known to do.

And the latest is that, having perhaps felt utterly helpless, the Minister has said people must co-operate (in inflation control). He presumably believes people spend too much money and, therefore, should cut down consumption. Indeed, if anything, cost-cutting must start at the government, from its highest level. Mr Chidambaram can set an example for others to follow.