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Ourview | The roaming inflation genie

Ourview | The roaming inflation genie
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First Published: Thu, Aug 04 2011. 11 05 PM IST
Updated: Thu, Aug 04 2011. 11 05 PM IST
Going by the empty seats in the Lok Sabha during the big parliamentary debate this week on the price situation, one would not believe that inflation is the biggest concern for the average citizen of India.
The entire policy establishment failed to correctly assess the depth of the problem when inflation began moving up in the middle of 2009. The first reaction was that it was because of the low base during the downturn after the Western financial crisis. The next official explanation was that prices were rising because of a temporary supply shock after the drought that year. Then we were told that food prices could anyway not be controlled by monetary and fiscal policies.
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News Reports
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By the time the policy establishment woke up to the harsh reality that India was being hit by generalized inflation, crucial months were lost. We now have a situation where inflation expectations of households have risen above the official consumer price indices and the Reserve Bank of India governor frets about the threat of a wage-price spiral. The battle to control inflation promises to be longer than most commentators --- including this newspaper --- earlier estimated.
In the parliamentary debate, Bharatiya Janata Party leader and former finance minister Yashwant Sinha argued that inflation control should take precedence over growth at this juncture. Batting on behalf of the government, finance minister Pranab Mukherjee said that growth and inflation are not necessarily in conflict. Few parliamentarians seem to care either way.
Inflation is less of a hot button issue these days because the middle-class incomes have shot up a great deal while the power of trade unions has waned. Even rural labourers have indexed wages when working in the Mahatma Gandhi National Rural Employment Guarantee Programme.
This change on the ground may have lulled politicians into believing that the days when governments were voted out because of the price of onions have gone away. The tolerance level may well have gone up, but there will always be a tipping point beyond which pain translates into anger. India may not be too far away from that point.
Do Indians care less about inflation these days? Tell us at views@livemint.com
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First Published: Thu, Aug 04 2011. 11 05 PM IST
More Topics: Ourviews | Inflation | RBI | Interest Rates | Growth |