New Delhi/Bangalore: Wholesale price inflation is the highest in 13 months and likely indicates a steeper increase in retail prices of most products, most importantly food—bad news for the Congress-led United Progressive Alliance (UPA) government in a year when it faces crucial electoral tests in key states before next year’s elections to the Lok Sabha.
The UPA warmed up well for these polls with a sop-laden Budget 2008, but inflation is likely to occupy centre stage during elections in Karnataka, most likely in May, and in Madhya Pradesh, Rajasthan, Chhattisgarh and Delhi later in the year. The Congress was defeated in the elections to the state assemblies of Gujarat and Himachal Pradesh in December.
Inflation as measured by the year-on-year rise in the wholesale price index, or WPI, was 6.68% for the week ended 15 March. While this is a widely accepted measure of nation-wide inflation, state-level consumer price indices better reflect the increase in prices with which consumers have had to cope. These include the consumer price index for agricultural labourers, or CPIAL, and the consumer price index for industrial workers, or CPIIW. Data till January—the latest available for consumer price indices—shows that even as WPI-based inflation registered a moderate increase, by around 5% since April 2007, consumer price inflation for both agricultural and industrial workers rose much more sharply, especially in the five states concerned.
The first of the five states going to polls this year is the most affected in terms of an increase in prices of food and other essential commodities. In Karnataka, inflation as measured by CPIAL rose at double-digit rates seven times between April 2007 and January. In the case of CPIIW, the inflation rate topped 7% in eight of the 10 months.
In Chhattisgarh, which doesn’t have a CPIAL, inflation based on CPIIW crossed double digits in seven of the 10 months.
Consumer price index-based inflation measures follow the same trend as wholesale price-based measures, but with a lag. That could mean that the coming months could witness significant increases in prices as the indices play catch-up.
Consumers in these states aren’t happy at what they see as the local and Union governments’ inaction.
“Prices are going up every month and the government can do something about it,” says Vincent Shanthakumar, who quit working for a private company in Bangalore to take up interior design projects. He adds that the UPA government should ensure that prices of commodities are kept at a level at which people can afford them.
Data on prices of basic food products compiled by the Union labour ministry for the January-December 2007 period, the latest available, indicates a severe strain on household budgets, something that isn’t immediately apparent on the basis of the WPI-based inflation measure.
In Bangalore, where the Congress is fighting hard to stave off a political challenge from the Bharatiya Janata Party (BJP), arhar dal, or lentils, became costlier by around 28%in this period, groundnut oil by 16% and staple rice by nearly 8%.
“It is difficult to live in Bangalore these days compared to other cities like Chennai (in neighbouring Tamil Nadu),” says S.B. Sarojini, who has been running a beauty parlour in Bangalore for the past 25 years. Sarojini adds that while her family has not had to alter its food habits, low-income households may have had to.
In Belgaum, Karnataka, the rise was even steeper as lentils became costlier by more than 35%, groundnut oil by more than 25% and rice by nearly 15% between January and December last year.
Aware that there are no short-term fixes to the problem, especially since most of these items are in short supply internationally, the ruling UPA is seeking to deflect responsibility in an effort to mitigate political damage.
“We will try to explain to the people that (the) price rise is a global phenomenon, driven by factors beyond our control,” says Prithviraj Chavan, minister of state in the Prime Minister’s Office and the Congress party’s general secretary in charge of Karnataka. “It won’t be easy, I admit, but we will try to explain that it boils down to a choice between pro-poor development schemes and simply subsidizing expenditure,” adds Chavan.
Chavan’s discomfiture is the BJP’s delight.
When the Election Commission indicated that elections to the Karnataka state assembly would be held shortly, Arun Jaitley, a Rajya Sabha member of the BJP and the person in charge of the party’s election affairs in Karnataka, was quick to list the price rise as one of his party’s key election issues.
Prior to this, both the Congress and the BJP had hoped to gain votes on the basis of the then ruling Janata Dal (Secular), or JD(S), party’s refusal in 2007 to honour a prior power sharing arrangement with the BJP. While the BJP hoped (and still hopes) to win votes as the party that was unfairly done out of what should have rightfully been its, Chavan says the Congress would be the natural beneficiary of the fighting between the JD(S) and the BJP, which paved the way for president’s rule in the state.
The price rise has given the BJP a real issue, says a leader of the Mayawati-led Bahujan Samaj Party (BSP), which is slowly growing its presence in the southern state. “All this time, (the) BJP had no issue, except for a non-existent sympathy wave. Now, they have got a real issue,’ says P.G.R. Sindhia, national general secretary of the BSP and a former Karnataka home minister.
Even the JD(S), which analysts say will suffer in these polls because of its role in forcing untimely elections in the state, has now found something to talk about. “The UPA government has totally failed,” says Merajuddin N. Patel, state president of the JD(S).
Chavan, however, says his party would fight elections on the twin planks of stability and clean governance. He adds that these are the most important issues in the state.
In many ways, the coming elections in Karnataka will highlight the impact that the increase in prices will have on elections to other states later this year, and to the Lok Sabha in early 2009. One analyst says this is made all the more significant by the fact that there is no elected government in Karnataka. “Usually state governments take the flak for price rise, but Karnataka does not have a democratically elected government,” says Sandeep Shastri, a Bangalore-based political analyst who reasons that it is too early to judge if the Congress will bear the brunt of this.
Parth J. Shah, president of the Centre for Civil Society, a New Delhi-based think tank, says that while the issue of increasing prices would figure prominently in the campaign, it remains to be seen whether it will be a deciding variable. He adds that this could well turn out to be just one of the issues the UPA finds hard to defend.
“By the time people cast their votes, other issues could assume more importance. The UPA could be tested on outcomes and not just outlays announced in the recent Budget. In Karnataka, specifically, there could be a debate on urban infrastructure versus rural development, among other issues, just as in the past elections,” Shah says.
Still, with prices rising across states, it is likely that inflation will play a big role in the coming polls in various states, say analysts. They add that many of the sops announced in Budget 2008, including the farm loan waiver worth at least Rs60,000 crore, will not benefit various segments of the electorate uniformly, leading to resentment in some pockets.
The UPA also finds itself in a position where it can do little to combat inflation.
“What we are seeing in India is, to a large extent, imported inflation. The WPI inflation is driven mainly by metal prices. The CPI (consumer price index) inflation is higher but, in both cases, the trend line is the same over the years,” says Ashok Gulati, director in Asia, International Food Policy Research Institute.
“The government is trying to keep prices down by using fiscal measures like duty cuts, etc., but in an election year, this won’t be of much use. The opposition will not let go of this opportunity to use this as an election campaign issue,” adds Gulati.
Paromita Shastri contributed to this story.