Most secretaries in economic ministries of the Union government will privately agree that the United Progressive Alliance (UPA) regime over-reacted to inflation. It is true the weekly Wholesale Price Index (WPI), which measures the movement in prices compared to those prevailing at the same time a year ago, has of late risen to a level that will disturb any government's peace.
But when you ask these secretaries if prices have indeed been rising at that rate, they will respond with a counter-question: do you think prices are rising at the level the index shows? And do you think the government is over-reacting? They will then explain how the index does not adequately capture the movements in prices of all the commodities that matter to a common man's basket of consumable items and how data for several of those items are not being updated regularly and how a monthly average of prices, compared to the price levels prevailing a month ago (and not a year ago), is a better yardstick of judging the pace at which prices are rising or falling.
Yet, going by what the government (including the Prime Minister and the finance minister) and the Reserve Bank of India have done in the last few weeks, they have viewed inflation very seriously. The imposition of export duties, reduction in import duties, increasing the minimum export prices, restricting exports and raising the cash reserve ratio for banks have been among the measures that have resulted from this concern over inflation.
This is not to argue that inflation should not be or is not an issue. Of course, rising inflation can be the biggest problem for a developing economy such as India and, therefore, the seriousness of the task of managing inflation can hardly be underestimated. The point to note here is the manner in which senior government functionaries have begun behaving in the wake of the disconcerting thought that every Friday, the new WPI index will be out and will, therefore, call for a fresh explanation of how the prices have risen.
Last Thursday, while reacting to the rise in international crude oil prices, even Finance Minister P Chidambaram said (though in a lighter vein): "Thank god, it is not Friday." One wonders why ministers prefer to react to all important economic developments these days. There is merit in the logic of ministers allowing their bureaucrats to face the media when bad news hits the government. This is what used to happen in the past.
The inflation problem has, of course, been made worse by the government's refusal to acknowledge the fact of rising international crude oil prices and to allow the state-controlled oil marketing companies to raise the prices of petrol, diesel and liquefied petroleum gas (LPG) for more than a year. Thus, there is nervousness within the government now with the international crude oil prices having crossed the $135 a barrel mark. There is virtually no option other than sharing this burden, at least partially, with the consumers. Which means, the inflation rate, which has already begun giving them sleepless nights, would become even more unmanageable.
So, how should senior government functionaries tackle this situation? One option is that the government should engage itself in consultations with political parties on the inevitability of rising prices in the present context. It is not enough for the Prime Minister to announce at his government's fourth anniversary celebrations party that global factors are responsible for the current phase of inflation.
The National Front government of V P Singh was confronted with a similar crisis on the petroleum prices front in 1990 after Iraq had invaded Kuwait and international crude oil prices had shot up. The government had mooted a 25 per cent surcharge on domestic oil prices. But before it was enforced, the VP Singh government convened a round of meeting with both the Left parties and the Bharatiya Janata Party (BJP). The political parties came out of the meeting voicing their protests against any move to hike oil prices. But the task of political management of a difficult situation had been achieved.
Unfortunately, the UPA regime is yet to make any move towards bringing either its alliance partners or the opposition political parties on board on this issue. They are bound to make a lot of noise against any move to raise prices. But once the noise is over, the UPA government will realise that the opposition parties too recognise the inevitability of a petroleum product price hike in the current situation.
