Is inflation some kind of a sudden plague, which hits without warning, spreads contagious havoc for a while and then disappears as mysteriously as it came? Finance ministers would love such an explanation, wouldn’t they? Government propagandists could command a high premium from their masters if they managed to sell such a myth. Unhappily for governments, and fortunately for mere mortals, the voter is not gullible.
Inflation is an interesting phenomenon. It is a consequence of decisions not taken, as much as decisions taken.
A simple analysis of statements made in Parliament during the debate on inflation by Finance Minister P. Chidambaram and Agriculature Minister Sharad Pawar will indicate what I mean.
The most startling analysis of basic causes was made by Pawar when he pointed out that the poor had acquired more liquidity, were therefore buying more food, and this, in conjunction with a change in dietary habits was pushing up food prices. The insensitivity of Pawar’s statement did not seem to upset anyone in the political class, proving how insensitive everyone has become.
The point is more moot. When did the shift in dietary patterns — as for instance, the rising demand for wheat in traditionally rice-eating South — take place? On the morning of the debate in Parliament? This change in food habits has been a slow turn, years in the making, and the Agriculture Ministry has been studying this pattern for a long while. So what did the agriculture minister do about it? Nothing. Did he encourage a shift in crop production through, for instance, incentives to ensure that India did not face a wheat shortage? Here is a consequence of decisions not taken.
There is a further twist to the story. We underestimate the role of corruption in inflation. There was a wheat shortage earlier. When did Pawar step in to import? Not when world prices were low, but when prices had peaked and you had no option but to buy at available rates. A check might unearth some interesting details.
On 16 April Finance Minister Chidambaram announced that action would be taken against cement and steel cartels. Why didn’t cartels attract the attention of the finance minister before April 16?
On the same day the government announced it would import one million tons of edible oil. Had prices of edible oil begun rising at the stroke of the midnight hour on April 16? Why did the honorable minister suddenly wake up before a debate in Parliament? As long as prices only threatened the livelihood of the poor, the government of Dr. Manmohan Singh did nothing. When prices began to threaten the life of the government, there was a flurry of activity. The government is guilty of collusion in inflation.
What was the rate of inflation during the five years that Dr. Manmohan Singh was finance minister under Narasimha Rao? In 1991-92 inflation was 13.7 percent, and these are the figures for the subsequent years of his finance ministership: 10.1 percent, 8.4 percent, 12.5 percent, 8.1 percent.
There is a correlation between inflation and political instability. Food prices are not the only factor, but they are a principal reason because food security is an important basis of collective national confidence. The government of Dr. Manmohan Singh, Chidambaram and Pawar believed that food security could be left to market forces. Market forces have now begun to bleed this government.
Inflation during the Jawharlal Nehru decade, between 1951-52 to 1960-61, was 1.8 percent. That was undeniably the most stable period of the last sixty years.
Inflation averaged 6.3 percent in the 1960s, rose to 10.3 percent during the 1970s, dropped to 7.2 percent in the 1980s and 7.8 percent in the 1990s, but the people still considered it too high and the turnover of governments was high. Calm returned when inflation was reduced to less than five percent in the first half of the new century.
Dr. Manmohan Singh’s five years as finance minister reduced the Congress Party from about 240 seats in the Lok Sabha to 145 seats. At the same rate of attrition his five years as prime minister could take the Congress to below a hundred seats.
His government is so dazzled by market forces that even now it is reluctant to ban futures trading in agricultural products. Dr. Manmohan has been kept out of the politics of power since he became prime minister, but the administration of power has been his responsibility. He will now be remembered for a nuclear deal that was waylaid by allies, and an economic policy that was shredded by the arrogance of ministers and the complacency of servitors.
