The quality of inflation

There has been much debate on, around and about inflation in India because, since early 2008, it has been soldiering on at about 10 per cent per year. The Reserve Bank of India, after having shot its monetary bolt, now says it is because of shortages. The Government says it is because of high prices of energy and other commodities. The Left says it is because of speculation by international investors. The economists say it is because of the high fiscal deficit. And many others say it is because of growth.

All these explanations are true but there is one other reason that no one is talking about. It was pointed out to me by the former editor of this paper. He says it is also because of better quality. That is, if what you buy today is better than what you were buying in the past, the cost of that improvement in quality has to get reflected in prices.

Costs are bound to increase when loosely sold items get packaged, when investments are made in supply chains, when manufacturers start building in energy efficiency, and so on. 

I posed the question to two people who should know: the chief statistician and the chief economic advisor.Both said that at present there is no way of assigning the cost of improvements in product quality and, therefore, no way of knowing how much of the inflation is being caused by it.

But think about it: the reason you don't mind paying more for the “same thing” today could well be because it is better than what that thing was in the past.

The good, the bad and the undeserving

Sometimes, you tend to look back and wonder about this and that. My time has been largely misspent in the company of economists who, I have concluded, are of three types: the good, the bad and the undeserving.

The best amongst the good ones speak in murmurs, the bad ones do regressions and the ugly ones preen like a brigade of frogs at a beauty parade. I write this because recently I had to put up with some very self-congratulatory talk.

My own view, after having studied the matter in depth, and at close range, is that the worst of the last group are the ones who served as chief economic advisors (CEAs) between 1982 and 2002.

During this period there were five and a half, the half being a “chief consultant”. He was the best by far and therefore ousted after 15 months. In the 1980s, one left after two years and another after about a year and half.

What did the two longest serving ones achieve? After all, one served through most of the 1980s and the other through most of the 1990s? The first, because of his political astuteness, became finance secretary in December 1989 and, thanks to his nervous cautiousness, watched helplessly as the economy wrecked itself in 1990; the second simply played fourth fiddle to the Manmohan Singh, Montek Ahluwalia and C. Rangarajan trio that oversaw the liberalisation of the economy in the early 1990s.

In the last 10 years there have been four CEAs. All have had excellent technical skills but, as their short tenures show, not political skills. As a result, they have not tried to anticipate what the Prime Minister wants to hear and tailor their reports accordingly. They have served their ministry, not the PM. This has stood the country in good stead.

The current incumbent's term will end soon. I have just the person in mind for the job.

Modi's legacy

What will happen to Gujarat if Narendra Modi comes away to Delhi as Prime Minister or is defeated in the next Assembly election? This question was posed to me a few days ago by a very concerned young lady from the State. Why do you worry, I asked.

Because, I was told, almost everything he has done to make Gujarat what it is reversible. After all, it was pointed out, a knave or a fool can always succeed him.

So what systems has he put in place that will ensure good governance after he ceases to be chief minister? The answer also came from the questioner: E-governance, stamp duties, two separate feeders for domestic and industrial sectors etc will last. But what about the rest?

The question is of fundamental importance. V. P. Singh in UP, Ramakrisha Hegde in Karnataka, Karunanidhi in Tamil Nadu, Rajasekhara Reddy in Andhra, and, of course Laloo in Bihar, provide good examples.

So Mr Modi will not be the only CM whose legacy has been destroyed by the successor. He therefore needs to make sure that all the good he has done, especially in the matter of getting government employees to work for the people, and not themselves, survives him.

Indeed, that would be his last frontier in Gujarat. And if I may make so bold, here's a solution: let him find a way of sacking government employees. Nothing else will work. Like a nuclear weapon, it is a deterrent of very significant proportions.

( blfeedback@thehindu.co.in )

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