UPA-2 faces inflation, corruption nightmares

UPA-2 in the run-up to the budget session of Parliament is plagued by two nightmares: corruption and inflation. And it is acutely aware of them. Prime minister Manmohan Singh, finance minister Pranab Mukherjee, and Planning Commission deputy chairman Montek Singh Ahluwalia expressed their concern over inflation on Friday.

Addressing a conference of state chief secretaries in New Delhi on Friday, Manmohan Singh said inflation endangers economic growth, and that corruption will dent India’s image in the international arena. Mukherjee on the same day said the government has no magic wand to bring down inflation and that the Reserve Bank of India (RBI) has taken measures to contain it. Ahluwalia at Kolkata expressed the view that inflation should come down to 7% in March from the 8% figure of December 2010. His view was based on the hope that inflation in the prices of onions, tomatoes and other vegetables will be brought down by the arrival of a fresh crop. He also expressed concern over the current account deficit of 3.6%.

The prime minister has suggested to the state governments that they should remove local levies such as mandi tax and octroi and amend the agriculture produce market laws which restrict the movement of agricultural produce across state boundaries. Of course, he did not offer it as a perfect prescription. He said state governments should take  decisions based on the local situation. Ahluwalia, too, finds that agro-marketing channels have to be freed up, and that the related laws need to be reformed. What they are both saying is that inflation, especially in agricultural commodities, is really in the sphere of the states and there is not much the central government can do about it.

Singh and Ahluwalia also referred to reforming retail — what they have in mind is FDI in retail — in order to ensure a steady supply of agricultural commodities. The focus of debates on agriculture is, thus, mainly on improving efficiency in supply chains.

The prime minister, however, put his finger on the problem when he said increase in agricultural productivity is the only way to combat food inflation. It is interesting that the GDP growth this fiscal would be around 8.5% thanks to better growth in agriculture. According to government estimates, agriculture is to expand by 6-6.5%, and agricultural per capita income is to grow by 6.5-7%. So, in a year of alarming food inflation, it is agriculture that will power the growth rate. Singh, Mukherjee and Ahluwalia may want to look at this economists’ teaser.

The government, it is clear, is aware of the problems, but it is offering no ready solutions. It could be said that Singh, Mukherjee and Ahluwalia are being realistic and that they are not making unrealistic promises to conjure away the problems. It is also true that they are not trying to sweep them under the carpet. This is mostly because of the public uproar on both corruption and inflation.

Singh has suggested ways of finding systemic solutions to prevent corruption and he has mentioned the anti-corruption bills pending in Parliament — the bill to protect whistle-blowers and the one on judicial accountability. Mukherjee thinks the issue of black money stashed in foreign banks has to be dealt with within the parameters of existing treaties.

Union communications minister Kapil Sibal has traced back the violations of policy in 2G spectrum allocation to the last year — 2003 — of the BJP-led NDA government. And he has announced that retired justice Shivraj Patil’s report on the working of the telecom ministry has been sent to the Central Bureau of Investigation for action. This is to show that the government is taking action against corruption where it can.

The opposition is, of course, fiercely attacking the government on these two issues. The BJP as well as the communist parties are nailing the government for its inability to control inflation and for not moving with greater zeal in tackling corruption. The two formations representing the two ends of the political spectrum are leading protests in different parts of the country against inflation and corruption. Whether they have clear-cut policy alternatives to deal with these two monsters, however, is an open question.

The government is hiding behind alibis on inflation and behind legal and administrative constraints on corruption. The UPA government has its back to the wall, though it is putting on a brave face. But this may not be enough to beat back the rising tide of discontent and anger in the country.