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Congress walks the tightrope

A Govt that can't control prices can't easily win elections. The issue isn’t as much about hard economics as about hard politics, reports Saroj Nagi.
Hindustan Times | By Saroj Nagi, New Delhi
UPDATED ON APR 05, 2008 03:27 AM IST

A government that cannot control prices cannot easily win elections. The issue isn’t as much about hard economics as about hard politics.

Not the least surprising therefore that the Congress-led UPA is desperate to rein in the monster that could annihilate its poll prospects in seven Assembly polls starting with the big contest next month in Karnataka. But its economic prescriptions at this late stage are bound to entail political side-effects, making it a Catch 22 situation for the ruling coalition.

Congress leaders privately admit the spectre of seven per cent inflation is a daunting problem. “One or the other section gets hurt when you deal with an issue like price rise,’’ admitted economist Abhijit Sen of Jawaharlal Nehru University. But he believes the obsession with the wholesale price index — rather than the consumer price index — tended to exaggerate the overall inflation figures.

While import duty cuts on oils and other items is expected to have an immediate impact, the ban on exports on basmati and non-basmati rice is likely to be double-edged. It will affect a section of farmers who stand to gain from exports that can fetch them the kind of profits the proposed hike in MSP would fail to match. Moreover, the ban on export already has the malayalee diaspora in the Middle East up in arms for being denied their staple diet from back home.

To make up for the fall in the buffer stock, the government might want to prevent farmers from selling their produce directly to private corporations. But such a step might prove to be hugely unpopular with the farmers.

The story is no different when it comes to other segments of the population. If charge about dipping buffer stock, food shortages and an escalation in the consumer price index are true, the poor and marginalised sections dependent on PDS supplies would be badly hit.

One time-tested way to check inflation is to control the money supply. But if the hike in interest rates takes place as expected, the middle classes thriving on loans would be angry as would be small entrepreneurs and businesses. And if as part of the same recipe, the government opts for a staggered implementation of the salary hikes the Wage Panel has proposed for government employees, the political consequences could be even more serious, the babus always being in the forefront of peer propaganda.

So, the party leaders are rightly keeping their fingers crossed. AICC spokesman Abhishek Singhvi made a valiant bid to assure that prices would slide. “Every citizen understands that translation of these measures will take a few weeks,’’ he said.

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