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Food and groceries have become increasingly unaffordable over the past few months across Indian cities and towns. Mint
Food and groceries have become increasingly unaffordable over the past few months across Indian cities and towns. Mint

Have politicians lost the fear of inflation?

  • Inflation has emerged as a key risk to India’s economic recovery but it may not be a political risk factor as yet. Inflation is still low compared to India’s past history, and a weakened Opposition has been unable to capitalize on rising prices so far

After many years, inflation has emerged as the key economic risk factor in India once again. With the wheels of the economy picking up pace and the hope generated by covid-19 vaccines lifting investor sentiments, the major roadblock on the road to recovery in 2021 appears to be inflation.

Will the upcoming Union budget manage to tame inflationary risks, or will it fan the fires of inflation? Much depends on how the ruling political class views the threat of inflation.

From the French revolution to the Arab Spring, rising prices, especially of food items, have often driven protests and regime changes. India’s own political history suggests that periods of exceptionally high inflation have been followed by political unrest and electoral upsets.


In 1973, a college protest in Gujarat over hostel mess dues swelled into a movement against price rise, leading to the resignation of the then chief minister of the state. The resignation gave wings to J P Narayan’s nation-wide movement against then Prime Minister Indira Gandhi, ultimately leading Gandhi to clamp a state of emergency.

Gandhi lost power in the elections that followed the Emergency but the incoming government consisting of Narayan’s followers failed to bring prices down even as infighting within the ruling coalition brought an end to the first non-Congress Union government in the country. Some of the participants in Narayan’s movement, including Arun Jaitley and Narendra Modi, played a key role in mobilizing public opinion against price rise during the final years of the United Progressive Alliance (UPA) government before Modi swept to power in 2014.

The political costs of inflation have been even clearer elsewhere. Regimes that presided over hyperinflation in Latin America either lost power — as in Argentina, Peru, Bolivia and Brazil—or won only by rigging elections, as in Venezuela and Zimbabwe.


But India’s current rate of inflation may not yet instill the fear of God among the ruling class. For one, the level of inflation still remains low by historical standards. For another, a weakened Opposition has so far failed to make price rise a salient issue so far.

Inflation would have become a raging issue by now, had it been “a less self-assured regime with stronger opposition", said former finance minister Yashwant Sinha.

Governments begin to worry only when the rate of inflation goes beyond 10%, said Arun Kumar, economist and professor at the Institute of Social Sciences, Delhi. While inflation has been higher than the Reserve Bank of India’s upper tolerance band of 6% for eight months in a row, it is still below double digits.

“The present-day voter is much more concerned about ideology than inflation," said Sanjay Kumar, professor at Centre for the Study of Developing Societies (CSDS) and a political analyst. “In 2014, inflation was the big issue in the election, but by 2019 its relevance reduced."

Indeed, just 4% of respondents to a post-poll survey by the CSDS in 2019 considered price rise to be the biggest issue for voters. This share had been over 25% in the 1980 elections.


Inflation did not find too many mentions in the manifestos for the last Lok Sabha elections in 2019. The word was missing in the vision documents of even the Opposition party, the Congress. This could simply be because inflation had declined sharply between 2014 and 2019. High prices had found prominent place in the BJP’s vision document in 2014 after the roaring inflation of the UPA years brought it to the forefront of public discourse.


The clean image of the Narendra Modi government may also be limiting the political fallout of inflation. High inflation combined with perceptions about high levels of corruption can spell doom for a government but high inflation alone may not be potent enough to cause electoral damage, said psephologist Yashwant Deshmukh.

However, even if not a potent political issue today, persistent inflation could foment disaffection in the times to come. Besides, the lack of purchasing power is also a threat to the nascent economic recovery. The rise in inflation over the past year has eroded the purchasing power of consumers in the country, especially of the pandemic-hit urban poor.

Even in 2017-18, when year-on-year inflation rates hovered around 4%, more than half of the expenses of the poorest section went into putting food on the table, data from the buried National Sample Survey report on consumption expenditure suggests. Given the rise in food prices since then, and the fall in incomes in a pandemic year, the ability to meet even basic non-food expenses would have come down sharply this year.


While the rural poor received in-kind and cash transfers during the pandemic, the urban poor were left behind at a time when they needed help most. To add to their misery, food and groceries have become increasingly unaffordable over the past few months across Indian cities and towns.

It remains to be seen if the upcoming Union budget can find ways to ease their pain without stoking the fires of inflation.

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