Finance minister Pranab Mukherjee was forthright in the Rajya Sabha on Tuesday about inflation being an issue of concern. There is general fear at the back of everyone’s minds that inflation could spoil the economic rebound party. Food inflation is still hovering at the high levels of near 18% and general inflation is touching 10%. But inflation does not seem to be the menace that it was for the Indian economy about 20 to 30 years ago. There is greater preparedness to both absorb inflationary pressures and the ability to take reasonably effective counter-measures.
The expectation is that food prices will come down considerably in the next few months as the rabi crop reaches themarkets, and that general inflation could stabilise once the oil price increase is absorbed. But as the economy is moving into top gear —with the Index of Industrial Production (IIP) rising by over 16% for January — the Reserve Bank of India will have to tweak interest rates and introduce other measures to cool things down to avoid adding fuel to the inflationary fire. This is the technical part of the story and it could turn out either way.
The more crucial aspect is the management of perceptions about inflation. That is why Mukherjee’s candour should help the UPA government to survive the inflation-inflicted bruises. There is no denying that high food prices are pinching the poor and the middle classes and government is expected to do something about it. Explanations and rationalisations will not pass muster with the common man who has to balance the monthly household budget. The middle class can grumble and bear with the pressure of inflation but the poor still remain vulnerable.
Government cannot be seen to be helpless in the face of inflation because the expectation — however naïve — is that it must do something about it. At the moment, apart from Mukherjee, most others in government seem to be indifferent to the general stress and distress caused by inflation. Opposition parties are firing all their guns on the issue and rightly so. It would be a big mistake if government were to believe that inflation is a passing phenomenon and all that needs to be done is to sit out the bad times.
On balance, it is hopes of recovery of healthy growth rates — predicted by government, planning commission and International Monetary Fund (IMF) — that are stronger than fears of inflation. That is good news in difficult times.
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