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HindustanTimes Fri,28 Nov 2014
Inflation! 11.91 %
Gautam Chikermane, Hindustan Times
New Delhi, July 22, 2008
First Published: 22:31 IST(22/7/2008)
Last Updated: 15:26 IST(23/7/2008)

Tuesday’s trust vote was not merely about who governs the nation for how long, but also about tackling something much larger: a daily cash flow that’s gone awry ever since the inflation rate climbed to 11.91 per cent, double of what it was less than four months ago.

Regardless of how it ended, the debate about the future of the UPA government in the Lok Sabha was as dignified a discussion as we can possibly get in a political environment of ‘single-digit’ parties leveraging their presence to extract their pounds of flesh. The economic stage was set with both Prime Minister Manmohan Singh and Leader of the Opposition L.K. Advani agreeing that the nuances of signing the Indo-US nuclear deal is a non-issue when inflation has hit — and threatens to stay — in double digits, eating into the very vitals of Indian households. So what about the Real McCoy: double-digit inflation?

High inflation is something India has experienced before. We’ve been there from 1973 to 1975, when the rate crossed 30 per cent and  stayed in double digits for 18 months as the country reeled under the first oil shock. Travel a little further back to 1943 when the country faced an inflation rate of 53.8 per cent. That number, thankfully, has been buried in history and few remember its shocking implications. But today everyone, particularly political parties, understands the political implication of high inflation.

The inflation of 1943 was radically different from that of 1973. One word separated these three decades: democracy. The earlier governance structure under an imperial regime could get away with such numbers. That inflation added its spikes to the war for independence and forced the British, licking their post-World War economic wounds, to leave the country is debatable. But by 1973, inflation was gently waking up and realising its political strength.

And just as democracy was the key differentiator then, 35 years later another key political determinant has embraced inflation today: greater political awareness of a larger number of people. As a result, the debate and implication of a high inflation rate has moved away from the corridors of power atop Raisina Hill and the capital’s power players. It has also moved further away from small but economically influential boardrooms to large but politically sensitive bedrooms.

The last few weeks have seen the boards of many large companies meet to discuss their quarterly results and cry over the economic slowdown that’s gripping the country at the speed of inflation. In many of these boards, there has been an optimism that now with the Left parties out of the UPA’s way, the much awaited reforms — in pension,  insurance, retail, disinvestment and so on — will take place. Like the markets they play their results to, these board members are being irrationally exuberant for two reasons.

One, even with the trust vote going the government’s way, the Samajwadi Party will want to influence the outcome of the ongoing drama involving the Ambani Brothers. Shibu Soren will now probably get the mining portfolio at a time when prices of iron and coal have been kissing new highs, resulting in the rising prices of steel that the government is trying so hard to push down, its actions often bordering on coercive ‘Control Raj’ times. Cobbling up interest groups-led support of this sort is going to skew India’s policy direction towards such issues, not towards pension reforms.

Two, even if the government is able to feign economic independence under the new dispensation — where it will be more vulnerable than ever to the whims and fancies of one or two MPs — the policy priority is not going to be whether or not a ‘windfall tax’ will be imposed, or whether the rights to mine Chidia will go to the Steel Authority of India, the Tatas or the Mittals, but one single matter:  bringing down prices. Everything else will be — rightly — relegated to this objective.

The reason is not difficult to fathom. Whether it is 100 days or nine months that the government has, and regardless of the several state elections in the interim, the stark fact facing the UPA government is that there is a larger player playing politics today, a player that no political party has experience in dealing with or has given much thought to: high inflation. The election manifestoes of the NDA, the UPA or the Left parties have no mention of the word ‘inflation’. I would assume that it would now be included for any future election.

To bring a word that has been much abused in the ‘post-9/11’, ‘post-Iraq invasion’ world, the meaning of democracy that has often been described as ‘majority rule’ is being questioned. And if a September 2007 working paper by Josiah Ober of Stanford University is to be considered, the original meaning of the word, based on a study of 5th-6th century B.C. Greek vocabulary, is the ‘capacity to do things’. That’s rather obvious to us bystanders.

In the context of this government, that ‘capacity to do things’ has now moved from a somewhat singular entity of the Left parties to an amorphous medley of individual and unpredictable interest groups. And as long as the inflation rate stays in double digits, the real question that will haunt the government will be: just for how long will the spoils of the victorious trust vote last?

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