Don't choke growth

Having reacted quickly to the sharp spurt in inflation by going into repeated huddles, and announced that both the finance ministry and the Reserve Bank will take "measured" steps to tackle the problem, the government should now make sure of two things.

First, it must quickly announce whatever it plans to do, so that the nervousness and uncertainty (and losses) in the debt markets are ended. Second, in moving to control inflation, growth should not be choked off""as was done nine years ago, when the economy seemed to be over-heating. It bears remembering that the Indian political system is far more sensitive to the problem of inflation than it is to the equally important issue of slow economic growth.

Voters do not blame political parties for the latter, at least not directly, though they do worry about the lack of jobs; in contrast, virtually every opinion poll has shown inflation at or near the top of the economic issues worrying voters, even when inflation rates have been quite low.

So, without in any way suggesting that the government should not treat the inflation problem with the full seriousness that it deserves, it is important that the growth factor be kept in mind. What is reassuring about the government's announcement is that there has been stress on the word "measured".

But given the nervousness that prevails, it would be best to come out quickly with whatever is planned. Even more important, make sure that the steps to be announced are indeed measured, and not sledgehammer blows that kill both confidence and demand""as happened in 1995.

Equally important, the government should address an economic problem with economic tools, and avoid the traditional penchant for either administrative action or exhortation. Not long ago, Ram Vilas Paswan was threatening price control on steel.

The finance minister has taken a gentler route and asked producers to not jack up prices, and consumers to not buy if they find prices are high. This is reminiscent of Mr Chidambaram in his earlier stint as finance minister trying to fuel bank lending activity by asking bankers to follow their "dharma".

Such exhortations will not persuade economic agents to not pursue their self-interest, though it must be admitted that Mr Paswan seems to have spooked steel producers to keep domestic prices below international levels.

The finance minister and the RBI have enough levers in their hands to bring inflation back down to the 5 per cent level, and it is these that should be used to achieve the desired results.