The wise people in the Reserve Bank of India’s (RBI’s) monetary policy committee are currently discussing the prospects of core inflation, the output gap, the neutral rate of interest and other such arcane matters. Monetary policy these days is seen as a technical exercise, best left to the experts. But it wasn’t always quite so bloodless.

In the seventies, one school of thought believed that inflation was a consequence of class conflict, or at least conflict between different sections of society for a share of the economic pie. The theory is best described in the words of economist and Nobel Laureate James Tobin: “inflation is the symptom of deep-rooted social and economic contradiction and conflict….The major economic groups are claiming pieces of pie that together exceed the whole pie. Inflation is the way that their claims, so far as they are expressed in nominal terms, are temporarily reconciled."

The theory first gained a following in the West when strong trade unions bid up wages, taking advantage of the commitment to full employment by their governments. It was the golden age for labour.

But the oil price shocks of the seventies led to a wage-price spiral and to very high rates of inflation. That was the excuse for the assault on trade unions and a rightward shift in policies. Interest rates were raised, mass unemployment followed and anti-inflationary policies replaced the commitment to full employment.

The balance of class forces shifted decisively in favour of capital. Globalization proved to be the final nail in the coffin for the western working class and, since then, labour’s share of national income has been steadily eroded.

Inflation, too, declined as a result. As economists Burdekin and Burkett said in their book Distributional Conflict and Inflation, a transition to a low-inflation regime “requires a removal of the sources of inflationary pressure via a reduction in the power of particular sectors to register claims on income and have those claims monetized by the central bank and/or the financial system."

Can we extrapolate this theory of inflation to the recent Indian experience? The contending classes are different, because organized labour forms a minuscule proportion of the working class in India, because peasants are a substantial class and because the so-called “middle" class is very vocal. But there is a remarkable similarity in the broad trend.

During the United Progressive Alliance-II regime, inflation was very high. In terms of the conflict theory, the competing claims of various sections of the population were all accommodated by the government in a please-all policy. The result was a steep rise in prices.

To be sure, higher crude oil prices were a factor, just as they were in the West in the seventies. But in India, neither fiscal nor monetary policies were tightened in response, nor were subsidies pruned. On the contrary, the government stepped up expenditure, but lacked the guts to tax the rich to pay for the extra spending.

It raised social expenditure through its employment guarantee scheme, which, together with a construction boom, raised wages in the informal sector. It increased minimum support prices for farmers. The result: the growth in average wages for rural workers in 2013-14 was a huge 28% year-on-year. It refused to curtail subsidies, because it was scared of a backlash from the middle classes.

In contrast, what did the new government do when it came to power in 2014? True, it did have the advantage of lower crude oil prices, but it didn’t hesitate to raise indirect taxes and slash subsidies. It went in for demonetization, which added to the deflationary impulses. Farm support prices were kept at a minimum. It reduced expenditure and the fiscal deficit as a percentage of gross domestic product (GDP). The upshot was farmer distress, long spells of negative growth in real rural wages and pain for the informal sector. But it did drive down inflation.

What the new government did was exactly what had been done in the West in the eighties—it altered the balance of class forces. Of course, with elections around the corner, the government has been now forced to make some concessions. But this is likely to be a temporary measure, rather than any change of heart.

Manas Chakravarty looks at trends and issues in the financial markets. Respond to this column at