It did not take even thirty days for the UPA election budget to come a cropper. Every day after the monstrous loan waiver was announced an average of two farmers committed suicide taking the total number on March 29 to 64.
But the bigger fiasco is on the price front. Analysing the budget in these columns I had pointed out that on the price front the budget had not given any hope, that it was a bag of tricks. That an emergency cabinet meeting had to be called on the mid-night of March 31, and it decided to amend the budget proposals on a number of items of import-export and duty cuts to tackle spiralling price rise is an eloquent illustration of the bad economic management of the UPA. That the Finance Minister could not anticipate the raging inflationary pressure on the economy and consumer price index at the time of presenting the budget is a surprise.
Prices of essential commodities were high ever since the UPA took charge in May 2004. As the safest abode of black marketeers, hoarders, kulaks, commission agents, speculators, corrupt officials and politicians, the UPA conglomerate and its fountainhead, the Congress Party have always been associated with scarcity, price rise and inflation. The UPA record on the price front is a sharp contrast with the NDA. It is generally being said that the current price rise is the result of the continuous fall in the production of cereals, especially wheat, pulses and oil seeds over the last several years. Vegetable and fruit prices too have gone up by three times in the last one year. It was even suggested by the Finance Minister that the people were eating more because of increased income and that was the chief cause for the price rise.
It is not only the prices of items of daily use that have sky-rocketed, there is practically no item in the market that has not gone up. The EMI on housing and consumer loans has almost doubled under the UPA. The prices of cooking fuel, transportation, petrol and diesel have more than doubled. This they can attribute to the global market scenario. The oil companies for the last many months have been planning to keep the oil prices high, at a minimum of above 100 dollar per barrel. India is keeping huge dollar stock on the other hand to keep the dollar high and rupee low. A strong rupee would have benefited the consumer. That the government is not willing to do.
The airline ticket rates were hiked last week. The price of cement, steel and fertilizer has gone up. So it is not only the food items that have become dearer. And that is why it is a clear indication of total mismanagement of the economy by the present regime that caused the inflation. They will pay a heavy political price. An explanation from the Congress party is that inflation is a global phenomenon. It was Indira Gandhi, in the early seventies who advanced the global phenomenon plea to explain price rise. The Congress has not changed. But its latest take is more hilarious. ?Please don'tpoliticise economic issues?, Congress made this strange request to the Opposition. In an election year this is the supreme sacrifice the Congress can ask of the Opposition.
Economists will say that inflation is largely the result of deficit financing. Chidambaram has been an expert in fudging figures to show low deficit. The UPA in the last four years has proved that its policies to cope with this disaster are inadequate and excessively fragile or wrong and sure to fail. For instance, last year during the same period there was high inflationary pressure. Then P. Chidambaram bragged that it was a sign of growth and that it was good for the economy. Now, price of every single consumer item is hitting the roof and threatening to spin out of control, he is ready to slam the breaks on the so-called growth run and agree to hike interest rates and duty rejigs. It was the same Finance Minister, who only a week ago, asked banks to cut interest rates and threatened to take the matter to the RBI and offered administrative measures to keep lending rates low. What has happened to the economic wisdom of the IMF-trained team?
With inflation hitting the 13-month high at 6.68 per cent the FM says that his government is ready to sacrifice growth to control price and will initiate a slew of fiscal, monetary and supply side measures to tackle inflation. The disaster has not happened in a day. Even when the FM was presenting his budget, the price situation was grim. And the number of incentives on the subsidy, tax and duty front that he announced then were directed to propel the demand side citing the stagnation in the consumer market. The contradiction is obvious even for a person with an elementary knowledge of economics. The FM has erred badly and in his position he owes an explanation to the country as to why he could not foresee the outcome. Soft-pedaling and pep talk will not do. He cannot afford to be wrong here, unless he was so consumed by vote politics in the hope of an early election, which they again mis-calculated.
Now the complacency is being replaced by deep fears and near hysteria. It is not only the common man that inflation upsets. It affects the corporates equally if not more. Resentments against high prices will combine with anger provoked by inflation as inflation moves many people into higher tax brackets. The insecurities caused by inflation are seen as aggravated by the large extraction of personal and corporate income by the government. This can derail most of its ambitious social security programmes as they will be termed wasteful, inefficient and inflationary. Already the UPA has started downsizing the PDS allocation of foodgrains for many states like Gujarat, Kerala and West Bengal who are protesting. For the last many months the allocation has been just one-third of the quota promised.
Economic statesmanship is sadly absent in this government. The art of policy-making is to find that set of policies which are economically, politically, socially and culturally feasible. All its policies to fight inflation have been aimed at reducing the rate of inflation from what they would otherwise be. Such efforts are likely to have at best only temporary and superficial success. This as economist Irving S. Friedman characterised, ?Combining futility with inequity. The leaders of such efforts face repudiation and denigration of their admittedly often courageous measures.?
(The views expressed in this column are personal. The writer can be contacted at [email protected])