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Bracing for the perfect storm

Bracing for the perfect storm
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First Published: Sun, Jan 16 2011. 06 30 PM IST
Updated: Sun, Jan 16 2011. 06 30 PM IST
Last week, I tagged along with a colleague to a luncheon meeting with a cabinet minister of the Congress-led United Progressive Alliance (UPA). Over a simple but tasty meal, inevitably our conversation moved on to the current state of drift in government. While it was a defensive response, the minister said there was a “systems” failure in the country. “Nobody is following the rules; whether it be politicians, journalists or the judiciary. This is not good.”
The minister is not the first; Capital Calculus had detailed a similar conversation with an astute observer in “Et tu, Brute and cleansing India” published in Mint on 20 December to make this observation. What was worrying was the sense of helplessness about the situation. The lack of purpose together with some weird policy and political responses (so visible last week) suggests that the UPA seems to be in the throes of a death wish.
What else can explain the political decision of telecom minister Kapil Sibal to take on the Comptroller and Auditor General (CAG), tantamount to shooting the messenger by a regime, which is struggling to keep its credibility alive. Worse, especially after CAG took the battle to the UPA, it has now exposed the flanks of Prime Minister Manmohan Singh—whose squeaky clean reputation, though dented, still serves the UPA’s cause.
In a bid to dent the opposition’s demand for a joint parliamentary committee probe into corruption, Singh had offered to appear before the PAC (Public Accounts Committee), the parliamentary body that takes up CAG findings. It was an out of the box effort. But now with CAG signalling contempt, in a veiled reference to Sibal, against those publicly criticizing its findings, Singh will have the unenviable task of explaining a cabinet minister’s actions before belligerent opposition members of the PAC, inflicting even more political damage.
Similarly, the two-day high-level meeting hosted by Singh to tackle the endemic problem of inflation turned out to be another damp squib. After a discussion, monitored closely by the hawk-eyed electronic media, the UPA came up with a policy recipe that was to quote a cliché, old wine in a new bottle. Worse, the public sector oil companies hiked petrol prices barely before the ink had dried on the UPA’s new policy initiative. Politically what it would have done to the UPA is anybody’s guess.
Privately, senior policy functionaries in the government admit that inflation is unlikely to be rolled back in the near future. Mint columnist Himanshu has pointed out that international prices of commodities are accelerating faster than domestic prices and are now threatening 2008 peaks. It is only a matter of time before this spills over into the domestic price situation. If that is the case, then such futile policy manoeuvres will only stoke inflation, especially among speculators who will see the government as powerless.
At this juncture, the government may be better off coming clean with the public. Making assurances—Mint had done a graphic, “Talk is cheap”, on 22 June and can be accessed at http://bit.ly/9Q1Rgi —that don’t pan out is not only bad public relations, but also damages the credibility of the government. At a time when every institution in the country is facing a crisis of credibility, this is hardly desirable.
The current nature of inflation, after two years of sustained growth in food prices, is structural in nature; the economy has changed gears with some sectors, particularly most parts of agriculture, still lagging behind. The mismatch is exacerbated with the emergence of strong rural demand.
The belief, stemming from a throwback to the command and control regime of the 1970s and 1980s, that inflation can be blamed on hoarders and speculators is pushing the envelope. What is surprising is that there are enough people within the UPA, the bureaucracy and the Reserve Bank of India who probably know this, but either do not articulate or prefer to hold their opinion.
However, time is not on the side of the UPA. The stupendous performance in the last decade has stoked aspirations across the board; with 50% of the 1.3 billion people less than 25 years of age, millions would be ready to join the workforce every year. To deliver the potential underlying the economy, especially in the decade that is India’s for the taking, structural fault lines have to be fixed and the government has to be working overtime on policy. For the last three months, even the UPA’s most ardent admirer will concede that the government is in limbo; cabinet meetings are throwing up small decisions while ignoring larger but more contentious issues.
The urgency is all the more, with elections due in the key states of Tamil Nadu, West Bengal and Kerala. The Congress has a lot riding on this, given that it has a clear chance of forming the government in each of these states. Policy inaction at the Centre on electorally sensitive subjects such as inflation could wreak political damage.
It is apparent then that the situation is akin to a perfect storm; ideal for precipitate action. But is the UPA listening?
Anil Padmanabhan is a deputy managing editor of Mint and writes every week on the intersection of politics and economics. Comments are welcome at capitalcalculus@livemint.com
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First Published: Sun, Jan 16 2011. 06 30 PM IST