For those of you who haven’t already moved on to the next brouhaha, the battle over numbers in Parliament last week was as entertaining as it was confusing.
Essentially, the government and the Opposition were fighting over the politically correct figure for inflation. Pranab Mukherjee said that we should aim for 5%, can live with 6-7% but never, never tolerate 8%. Yashwant Sinha demanded 3%. The Left, of course, in its usual social realistic fashion, wanted inflation to be 0%. All this while, the regional parties, perhaps not much into numbers unless seats are being discussed, provided a cacophonous background.
So what was — is — at issue here? Simply put, whether growth should be sacrificed to bring down prices. Now, this is a seductive idea for any politician worth his onions as prices do indeed dip as the economy cools down. With projections from within the administration suggesting that growth is indeed tapering off, there may just be an enforced glimmer of light at the end of the tunnel.
But another notion, this one closer to the UPA’s heart, is worth a look before economic activity is wilfully put into low gear. Could the forces keeping prices high be the same ones choking growth? Hmm.
Let’s put our money where our mouth is and begin with food. What a lot of it we waste. So, allow supermarkets and their hectares of freezers to do business in India. You’ll find that vegetables that rot in godowns may actually reach plates. It’s quite simple — farm yield goes up, prices fall. But the BJP, quite an intelligent bunch otherwise, took years to be convinced about foreign investment in retail chains. Ironically, it is the 33 million people who deliver food from the farm to the table — the party’s core constituency — who now seem to be standing in the way of national interest as interpreted by the BJP itself.
Take the other hot potato: labour. Suppose we have a law that households hiring maids cannot fire them. The housewife then can’t be faulted for buying a dishwasher. Something similar is happening in our factories. Rigid labour laws push mechanisation — and jobless growth — in the world’s second-fastest growing economy. We don’t want the government in our face, but car owners are also certainly not complaining when the government coughs up a part of their diesel bill. As long as the bite does not come in the form of double-digit inflation, it’s all sweetness. Cross that mark, and they’re all screaming blue murder. The middle-class loves a free lunch, subsidised healthcare and education. It is this dependency mode that makes this class such easy prey for politicians.
Any reform cutback and the superstructure will spring more leaks. This will show in the bottomline: the price line. To keep the pipes working, the economy ought to barrel on. And it won’t overheat if the political opposition to more reforms keeps a lid on it. Indians love their cars and their computers — and both are produced in a competitive environment with affordable price tags. But where markets are regulated, such as those for labour and land (where the bulk of voters lie), the inflationary pressure is touching danger levels.
Small government may sound compelling, but no political party takes ‘withdrawal’ seriously. We need roads, ports, schools, hospitals. So can the government tighten its belt when the global crude price hits the roof? Getting into a corset may work in the West simply because roads and schools are already in place. But here in India, when it comes to accountability on non-development spending, the Opposition is bang on. The bloat here is immense.
Inflation, like taxes, is an unstated contract between governments and citizens. Too much of either puts the government on the mat. As a nation, we have a particularly low pain threshold for food inflation. This happens when the crop fails, or the supply pipeline is clogged, or plain old profiteering is afoot, or all of these happen at the same time. In all these cases, we have every right to hold the government responsible. Rising prices make all of us poor. But they make the poor poorer faster than they make the rich poorer. Food inflation takes a bigger bite out of the poor man’s purchasing power than that of the not so poor man’s. When the vulnerable are hurt, inflation becomes the ethical, economic and political enemy. The Indian growth story then bypasses the millions in India who live in Bharat. And that is the recipe for political suicide.
The numbers thrown up in the air in Parliament last week were distracting and far removed from ground reality. Instead of playing with the abacus, we should define what kind of inflation is acceptable. What can we do about the unacceptable variety? How do we deal with an unexpected price rise? The maths can be fun. But with assembly polls round the corner, fun is the last thing the government and its opponents can afford to have now.