Former Finance Minister Yashwant Sinha on Thursday questioned the government's stance on rising prices and said inflation need not rule high due to fast-paced growth as was evident during the National Democratic Alliance regime.
Participating in a debate on the supplementary demand for grants presented by Finance Minister Pranab Mukherjee, Sinha said the main cause for high inflation in the country was unchecked fiscal profligacy of the federal government.
"Even an untrained economist like me, who got a chance to become finance minister, knew this basic theory that if money supply in the economy is unchecked, inflation is bound to rise," Sinha said.
"The current problem is because of what is called liquidity overhang of the earlier years in the economy," he said, adding it was ironical that the government further accentuated the situation by using the global slowdown as an excuse to spend further.
Seeking to ridicule Mukherjee's assertion in the Lok Sabha Wednesday in his reply to a debate on rising prices that its was a necessary consequence of high growth, Sinha said: "The finance minister has propounded a piquant theory."
Questioning Mukherjee's assertion, Sinha reeled out officials figures of growth rate and inflation for the last 10 years and asserted that there was no linkage between high growth rate and high inflation.
"The Gross Domestic Product of the country grew by a fair 5.8 percent in 2001-02, when the Wholesale Price Index was 1.6 percent”, said Sinha.
"The following year 2002-03, a year of severe drought entailing a fall in food grains production by 40,000 million tonnes, the growth rate came down to 4 percent while inflation (WPI) rose to 6.5 percent," he added.
"Similarly the growth rate for fiscal 2003-04, the last year of the NDA government, rose to 8.5 percent while inflation fell down to 4.6 percent”, said Sinha.
Reeling out figures during the United Progressive Alliance government, Sinha said the growth rates and inflation in year 2004-05 were 7.5 percent and 6.5 percent respectively and those in 2005-06 were 9.5 percent and 4 percent.
Giving out similar figures for the subsequent years, Sinha contended that "these figures conclusively show, even to an untrained economist like me that, there is no linkage between growth rate and inflation.”
"I cannot tell the old hungry people of my constituency in Hazaribagh that you cannot have cheap food because you are blessed with high growth rate, as explained by our finance minister in the house”, said Sinha.
"If high inflation is the necessary consequence of the high growth, then we do not want such a growth as people cannot eat growth rate," he said.
Pointing out that Mukherjee is not a “trained economist" like himself, Sinha asserted that "his understanding of the whole problem of inflation is wrong."
"The reason for rising prices is elsewhere and lies in the fact of high supply of money in the economy for consumer expenditure rather than for the investment expenditure," said Sinha.
Explaining the term "liquidity overhang of earlier years," Sinha said "the government of India, taking the shelter of the global meltdown, which began September 2008, infused huge money in the system purportedly to stimulate economy."
"But most of the money was spent for consumer expenditure rather than investment expenditure," said Sinha, adding that in the garb of countering global meltdown, the government allowed the fiscal deficit to grow indiscriminately.
"The government played with the budgetary figures, making a mincemeat of the Fiscal Responsibility and Budget Management Act, which our government had passed,” said Sinha.