“Inflation will be in single digit by early 2009,” Planning Commission Deputy Chairman Montek Singh Ahluwalia had confidently predicted in the last week of September, emphasizing the different measures taken by the Congress-led United Progressive Alliance (UPA). He and his boss, prime minister Manmohan Singh have been working on the assumption that by early 2009, when the government will have to face a general election, price rise — the single biggest political issue — will be tamed.
Within a fortnight, the government’s priority has changed — from regulating money supply to increasing liquidity, following the global financial meltdown.
The associated political fallout has put the ruling alliance in such predicament that the opposition Bharatiya Janata Party (BJP) can’t hide its glee. “If they increase money supply, prices will shoot up and that will be politically costly for the UPA,” points out Arun Jaitely, BJP general secretary. Congress helplessness is palpable. “It is a global crisis. The government is doing its best and one must appreciate the fact the PSU banks of the country are keeping our economy stable,” says Digvijay Singh, Congress general secretary.
Congress hoped to sell economic growth as a political plank until inflation began to rise constantly from early 2007. The party had made out a convincing case that the impressive growth helped it finance a lot of social welfare schemes.
As a series of election defeats for the party was attributed primarily to price rise, the government put in place several anti-inflationary measures and restricting credit was one of them.
However, the BJP soon made an issue of increasing cost to middleclass borrowers due to government’s anti-inflationary measures. Middleclass has never been politically as powerful as they are now, after the delimitation exercise that increased the number of urban electoral constituencies in India.
While the Congress was already attempting a tightrope walk of taming inflation without affecting growth and balancing the interests of different political constituencies, the new turn in the economy has made its standing far worse.
Inflation rates had come down marginally, and Ahluwalia’s confidence was not without reason. Even after the meltdown had begun, PM Singh said the liquidity crunch would have a silver lining – in the form of moderating inflation. “But now on, government’s rescue efforts for the economy will have politically unpalatable side effects on inflation,” admits a Congress leader.
In the next two months, the party has to face state assembly elections in Delhi, Jammu and Kashmir, Rajasthan, Chattisgarh and Madhya Pradesh, and general elections not later than May 2009. And far from bringing down inflation, the government’s immediate challenge is to keep the economy afloat. Being the ruling party may never have been