3 May 2008
IN INDIA, rising inflation has become the most ticklish political issue to hit Dr Manmohan Singh’s government. Inflation concerns is dominating the policy discourse of the Congress-led multiparty government.
Onion — whose prices have shot nearly three times in the last six months — is proving politically heady. In the past, it has removed governments as much as it has spiced up the curries. Millions of poor Indians, who spend much of their income feeding their families, are despondent as food is getting expensive by the day.
Food prices are climbing for just about everything from rice to lentils; milk, tea, vegetables.
Though growing food prices have a weighting of only 15.4 per cent in the wholesale-price index (WPI), the most commonly used measure to evaluate price rise, inflation has spiralled mainly on account of higher prices of food articles and manufactured goods. The wholesale price based inflation has risen to an annual 7.57 per cent, a three-and-a-half year high, much above the ceiling of 5.5 per cent that Reserve Bank of India (RBI), India’s central bank, has set.
The inflation was hovering around 6.07 per cent a year ago. The previous high of 7.76 per cent was recorded for the week ended November 2, 2004. In May 2008, prices are rising twice as fast as in China, and inflation is escalating quicker than in developed world. India’s extraordinary economic expansion has already started to overheat. Indian prime minister may be acutely concerned, but less clear are the strategies of the RBI in combating inflation.
The government’s claim of implementing a number of measures, both fiscal and administrative, to ease the supply of some commodities that are critical to moderating the current spell of inflation seems far-fetched. The government has by way of supplementing such measures, and also underlining the relevance of monetary policy in the battle against inflation, has sought actions from RBI that hiked the CRR by 0.50 percentage point. But the prices of general commodities have shown no signs of abating.
Instead, it has been on the constant rise. The price of wheat has risen by nearly 12-14 per cent in a year. Edible-oil prices have been shooting up by as much as 43 per cent in a year forcing the government to cut excise duties. Blame it on unpredictable weather abroad, bringing a poor Australian wheat harvest, and some insignificant economic management, the rising inflation has crippled the government’s backbone.
It is now faced with the challenge of steering a fast-growing economy, which after three years of near double-digit growth, is confronted with the consequence. If not, it could be enough to derail the government in parliamentary elections that can be declared anytime soon.
Courtesy Khaleej Times