The Hindu Business Line : Oil price holds the key

If it has not happened already (since this piece was written last weekend), this week will in all probability see the formal withdrawal of support of the Left from the UPA Government — probably an issue-based arrangement — which, at least at one level, will clear up the confusion that has been vitiating national politics and economic decision-making over the past few weeks.

It is, of course, not expected that the new partner of the Congress in the ruling dispensation will bring about a sea-change in UPA governance. Indeed, if the track record of the players involved is taken into consideration, the outcome could be vastly different. But, this apart, what the change will certainly usher in — in the closing stages of the regime’s life — is a period of relative political stability which, above all else, will help the UPA allies as a whole to face the electorate in the next Lok Sabha elections in a somewhat more presentable shape than would have been the case had the intra-coalition bickering continued right up to the end of the present Lok Sabha’s life.

Crux of the situation

However, whether this will help boost the prospects of the UPA parties in the next elections is an open issue depending on how other factors shaping the mind of the electorate will work in the months between now and the polls. In other words, even if the Manmohan Singh Government were to present to the nation a picture of the most harmonious political cooperation among coalition constituents, the electorate could get very cross indeed if, say, the domestic price level continued to rise, touching and perhaps even exceeding (this is an improbability) the 13 per cent level.

This, in fact, is the crux of the current political situation, the inference being that the Government will do everything in its power, first, to prepare the nation for a period of further increases in the inflation rate and, secondly, to keep the impact of rising prices within a bearable level as far as the average citizen is concerned.

This (and not the nuclear deal) is the most important task facing the UPA Government just now, and it remains to be seen how successful it will be in attaining the objective. At its core, this is an administrative problem where the central effort will be to prevent speculators and hoarders from taking advantage of the rising inflation rate: In other words, making a killing when the going is good. On paper this may seem a straightforward enough job to be performed by the administration, specially in the States.

Weak administrative structure

In practice, however, it could turn out to be a nightmare for the Central policy-makers because of the laxity that has crept into the administrative structure all over the country. Indeed, let us make no bones about admitting the fact that the national administrative structure — from the topmost level to the grassroots — has been weakened to an extent which should ordinarily call for emergency remedial measures which, of course, has not been forthcoming because those who should draw up the therapy and implement it are themselves part and parcel of the system.

The one silver lining on the price front is the expected performance of the monsoon, which is expected to be bounteous (one hopes not too bounteous) which would have the effect of increasing supplies and dousing the price-increase trend as far as farm products are concerned.

But for this, the economy will have to wait for some time, a period which could see great damage being done to the image of the Manmohan Singh Government if proper administrative steps are not taken to prevent a runaway price-rise situation.

Trigger points

Apart from the administrative aspect of an inflationary situation where, essentially, law-breakers will have to be kept under control, there is also the job of keeping the “trigger points” of price-inflation under control which, in the present phase at least, is perhaps an even more difficult task to perform than getting a creaking administration to deliver.

This is because the “trigger” is not under the control of New Delhi but is located abroad and is in the hands of commodity speculators and crude oil producers. What this means is that the UPA Government — along with other national Governments all over the world — is no more than a sitting duck as far as the crude price is concerned, which is not a problem by itself but can lead to serious economic and political implications if rising crude prices lead to a general domestic price increase and raise the level of discontent within the country.

This price-increase scenario has no link with the political dispensation ruling the roost in New Delhi but is perhaps today a central factor in the run-up to the next Lok Sabha elections. The assumption must be that the powers-that-be in New Delhi are aware of this mechanics of the developing politico-economic situation and have also devised an action plan to tackle it. What can that action plan be?

Possible action plan

Common sense would suggest that the instinctive response would be to tell the people that the UPA Government is not responsible for the price-inflation and that whatever hardship the average citizen is presently undergoing on that score is the result of the world crude price rising sharply wholly because of extraneous factors.

While this would be the most sensible course to adopt, the fact remains that people who can barely make both ends meet in normal circumstances — who form a sizable part of the electorate — would accept the argument up a point and no further.

Beyond that very short fuse they would probably conclude that the present bunch in power at the Centre needs to go and be replaced by a different lot, being quite oblivious of the fact that a different set in power in New Delhi will not be able to halt the march of the world crude price to $150 a barrel and beyond.

It will be safe to assume that the UPA political strategists are fully aware of the “short fuse” situation, the inference being that they must have devised a plan to counter its impact if the crude price continues its upward journey. It would appear that that plan would be to call for dissolution of the House and ask for fresh elections much before the scheduled time, in the process attempting to control the electoral damage caused by rising pieces and also telling the people that the Manmohan Singh Government is not responsible for the current bout of inflation.

Whether such a strategy will have any serious impact on the poll result is, of course, anybody’s guess, the strong possibility being that the UPA will anyway have to make way for other people at the Centre, if recent electoral exercises in the country are any indication.

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