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After please-all budget, inflation a party-pooper

After please-all budget, inflation a party-pooper
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First Published: Mon, Mar 31 2008. 12 16 AM IST
Updated: Mon, Mar 31 2008. 12 16 AM IST
The euphoria over the ‘populist’ Budget has waned and alarm bells are ringing in the United Progressive Alliance (UPA) establishment over surging inflation levels. Please-all measures such as farm loan waivers, a hike in tax exemption limits and the recommendations of the Sixth Pay Commission will severely dent the nation’s finances, but soaring inflation, particularly in the prices of essential commodities, is beginning to stoke a strong ‘feel bad’ factor.
High global crude, food and commodity prices have pushed the wholesale inflation rate for the week ended March to 6.68%, the highest in 14 months. Inflation has breached the Reserve Bank of India’s preferred level of 5% for several weeks now.
The UPA establishment is engaged in a firefighting mission to rein in prices quickly, as a number of state elections are scheduled for this year and the general election, early next year. The cabinet committee on prices is meeting on Monday to take stock of the situation and to examine measures needed to curb inflation.
Another high-level meeting will be held on Wednesday to consider measures for maintaining adequate supply line in the face of global pressure on prices.
Doubts about accuracy
The official inflation rate is based on wholesale prices. The hike in retail prices is usually much higher. A visit to the market reveals the rapid growth in prices. Vegetables, fruits, foodgrains, edible oils—all have experienced as much as 30-50% increase in the retail prices over the past 12 months. Therefore, doubts persist about the accuracy of the inflation rates reported as Wholesale Price Index (WPI). The index is computed by gathering information from different markets on the wholesale prices of goods.
Officials in the know suggest the data is often massaged and moderated to report inflation levels that are more acceptable to the political bosses. This is done by excluding some markets or some goods from the basket and treating them as ‘non-reporting’ markets or items.
Common man suffering
Rising inflation is breaking the back of the common man. In one of our surveys conducted recently in Delhi, 36% of Delhi’s residents said ‘price rise’ was the biggest problem facing them. As the Congress party is ruling both in the state and at the Centre (where it is the largest and dominant constituent of the UPA), this alone is enough to hand a crushing defeat to the Shiela Dikshit government in Delhi.
The Congress party paid a heavy price in assembly elections last year and the same is haunting the UPA government yet again. Thanks to raging inflation, the Bharatiya Janata Party (BJP) secured 19 of the 23 urban seats it contested in Punjab, nearly wiping out the Congress from the urban areas.
Incumbency pressure
Wherever the Congress is in power in the states, it will pay a heavy price as the party will be held solely responsible for making life difficult for the common man. It will be interesting to see how this factor plays out in states ruled by the BJP-led NDA (National Democratic Alliance) or other parties. The BJP is sensing a huge opportunity. To highlight the issue and to lay the blame for inflation squarely on the UPA government at the Centre, the BJP is organizing week-long protests and demonstrations all over the country in the second week of April.
After the ‘please all’ Budget, the Congress party appeared to be bracing for a showdown with the Left Front over the Indo-US nuclear deal and even seemed to be willing to ‘sacrifice’ the government for the sake of the deal and seek a renewed mandate.
The Budget had enthused the leaders of the Congress party so much that they wanted the party to announce snap polls to the Lok Sabha to encash the euphoria generated with loan waivers and budget sops. However, with galloping inflation, the mood has turned completely sombre and the party is once again diffident to face the electorate.
Potent electoral issues
Economic issues, especially an increase in prices and corruption are potent electoral issues. If high prices of onion for a few months in Delhi could cost the BJP dearly in the 1998 assembly polls, imagine the scale of public anger given the high prices of essential commodities during the four years of the UPA rule.
The Congress-led UPA would benefit if local and state-level factors dominate the national elections as the Congress could hope to benefit from the anti-incumbency against the NDA and opposition-ruled state governments. On the other hand, if ‘price rise’ becomes a salient issue at the national level and the UPA government is perceived as the ‘culprit’, the election results would be devastating.
Time is running out for the UPA leadership and if it fails to rein in inflation quickly, it will be curtains for the UPA at the Centre.
G.V.L. Narasimha Rao is a political analyst and managing director of Development & Research Services, a research consulting firm. Your comments are welcome at thebottomline@livemint.com
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First Published: Mon, Mar 31 2008. 12 16 AM IST