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India’s economic gains are being eroded by rising prices

India’s economic gains are being eroded by rising prices
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First Published: Thu, Jun 12 2008. 12 02 AM IST
Updated: Thu, Jun 12 2008. 12 02 AM IST
New Delhi: Since Manmohan Singh became prime minister four years ago, India’s economy has soared by nearly 9% a year on average and per capita income is nearly double that of a decade ago.
But recently, in quick succession, came sharp rises in the costs of food and fuel, felt the world over but especially painful for India, where more than a quarter of the people live on $1 (Rs42.9) a day.
The global shocks have tested the government’s ability to keep up its subsidies for the poor, leaving it caught between satisfying global investors by keeping its books in order, and meeting the demands of a hard-pressed electorate.
Last week, despite the approach of elections next year, the government succumbed to the economic imperatives and reduced its subsidies for fuel, setting off scattered protests and handing its political opponents a cudgel, analysts say.
The lethal mix of rising prices, says Mahesh Rangarajan, a political analyst, “threatens to undermine over the next six months all the goodwill the government was in the process of earning.” With inflation now at its highest level in more than three years, critics of the Congress party-led government have barely been able to contain their glee. The Leftist parties, technically Singh’s allies, have called for nationwide protests. At its hyperbolic best, the right-wing Bharatiya Janata Party, or BJP, has called the fuel price increase an act of “economic terrorism”.
“Here is a government that has mismanaged the economy so badly that not only the poor but also the middle classes are seeing their purchasing power eroded due to spiralling prices,” the opposition leader, L.K. Advani, told his party faithful this month.
In fact, income has grown more over the last four years than it did in the six years of the preceding BJP-led government. Finance minister P. Chidambaram denounced the opposition’s criticism as “an exercise in self-deception”.
One government minister, who did not want to be quoted by name criticizing his own government, played down the political impact of the food and fuel price hikes, but only because the government’s popularity had fallen so low.
The government has used its handsome new tax revenues to benefit voters at the vast bottom of the pyramid with an ambitious public works programme in the countryside, increased spending on health and education and, most recently, a waiver of farm loans.
But despite those efforts and the strides in the economy, the minister reasoned, most Indians have not felt the benefits of the government’s welfare programmes and “are still struggling with poverty.”
“Had things been going hunky-dory for the bulk of the electorate, then this might have been just a rude shock,” the minister said of the fuel price increase. “But coming on top of their feeling that we are not really doing much for them, this becomes one more straw on the camel’s back.”
The government also faces new pressure to rein in inflation, but any move to do so — by, say, raising interest rates — could slow growth that many Indians have yet to feel.
Since the Central government’s announcement last week, several state governments have swiftly moved to cushion the blow of the price increase by lowering state fuel taxes. Singh has directed cabinet ministers to tighten their belts, including cancelling foreign trips. To speak to many Indians about their economic fortunes over the last four years is to hear of frustration and ambivalence.
©2008/The New York Times
Anand Giridharadas in Mumbai contributed to this story.
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First Published: Thu, Jun 12 2008. 12 02 AM IST