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Rising inflation : Alarm bells ringing in UPA

	February 19, 2007

As inflation climbed to a two-year high at 6.73 per cent early this month, the alarm bells are ringing at the Centre as the Congress fears it may have an adverse impact on the party prospects in the Assembly elections. Many observers see the record 76 per cent polling in the Assembly elections in Punjab last week as a protest vote for change. The result of the Assembly elections in Punjab as well as Uttrakhand and Manipur, where the process is still on, would be available on Feb. 27, but the Congress has already begun the hunt for scapegoats. If the Congress loses power in Punjab, much of the blame may be put at the doors of Chief Minister Amrinder Singh, but rising prices are also being seen by many including Congressmen as one of the main factors for the voters going against the party.



Ultimately, it was a clear signal from party president Sonia Gandhi which made the UPA Government reduce petrol and diesel prices last week. A day after Petroleum Minister Murli Deora was saying there is no proposal to reduce petrol and diesel prices till crude prices stabilise in the international markets, the Government reduced petrol and diesel prices by Rs. 2 and Re. 1 respectively on Thursday, Feb. 15. This was the second step by the Government last week to check rising prices. Earlier in the week, the Reserve Bank of India raised the requirement for the banks to hold cash with the central bank (RBI) in a bid to reduce the amount of money in circulation.











Sonia behind oil price cut



Petroleum Minister Deora admitted on Thursday, Feb. 15, that reduction in petroleum prices was prompted by UPA chairperson’s concern over the rising cost of living.



“This reduction restores petrol and diesel prices to June levels and fulfils Sonia Gandhi’s vision (that the benefit of any decline in crude will be passed on to the aam aadmi). The reduction in diesel prices will help reduce prices of items used by people across the board,” Deora said.



This is perhaps one of those rare instances when a cabinet minister announced a major decision without either taking credit himself or giving it to the head of the government.



By giving Sonia full credit, Deora is clearly trying to shore up the UPA chairperson’s image of a leader concerned over people’s welfare, even at the cost of reversing his own public stand on the issue.



After lowering prices in November, Deora had been maintaining that a further reduction will come only if the mix of crudes India buys (Indian basket) stabilises below $50/barrel for at least a fortnight. That is yet to happen.



After Sonia’s nudge, the ball was set rolling with a series of parleys in the government, starting with Manmohan Singh’s calls to Finance Minister P Chidambaram and Deora. The three discussed the issue together and separately.



Chidambaram was included in the parleys due to Deora’s persistent demand for a duty rejig, particularly a reduction in excise levy, so that the price reduction did not further hurt the bottomlines of state-owned oil marketing firms. Since the move was initiated by Sonia, Deora got his way with a duty rejig as the Finance Ministry has agreed to reduce excise to take care of the oil firms’ concerns.





PM hopeful, allies critical



While Prime Minister Manmohan Singh has said that the cut in fuel prices coupled with tightening of money supply should have positive results on bringing down inflation, the UPA allies are demanding further urgent steps to check galloping prices. The opposition BJP is saying that the Government measures constitute a case of too little, too late.



Speaking in New Delhi on Feb. 15, Dr. Manmohan Singh said he hopes to see positive results from the steps taken to check prices. He said the Government has a multi-pronged strategy to bring down prices.





On the other hand, the CPI(M) has blamed what it calls the “wrong policies and mismanagement by the UPA Government” for shortage of essential commodities. Party politburo member Sitaram Yechury, speaking in New Delhi on Feb. 15, said the Government should immediately put curbs on futures trading in essential commodities and take measures to boost foodgrain production. He said the price rise issue is going to have an adverse affect on the fortunes of the Congress in the Punjab and Uttrakhand elections.



An article in the party’s mouthpiece, People’s Democracy, said : “The argument that inflation is a consequence of rapid growth does not stand scrutiny. The Chinese economy has been registering a rapid growth for three decades, but inflation is below two per cent in China.”



The Sharad Pawar-led Nationalist Congress Party asked the Government to get its acts together on the issue of price rise. Party spokesman D.P. Tripathi said in New Delhi : “Price rise is the real problem for our government. We should try to contain inflation and control spiraling prices.”



The opposition Janata Dal (United), without mentioning NCP chief Sharad Pawar, said placing the Agriculture, Food and Consumer Affairs Ministries under one person, was not such a good idea. JDU president Sharad Yadav charged Congress president Sonia Gandhi with paying lip service to the issue of rising prices. He demanded an immediate ban on forward trading in essential items and scrapping of the multi-commodities exchange.



The BJP was even more strident in its criticism of the UPA Government for the price rise. Speaking in New Delhi on Feb. 16, leader of the opposition in the Lok Sabha L.K. Advani sought a discussion with Prime Minister Manmohan Singh on national issues including inflation which he called the biggest problem facing the common man. Party spokesperson Prakash Javadekar, without naming Dr. Manmohan Singh, Sharad Pawar and P. Chidambaram, said all of them have completely failed in their duty to check prices. He said the Prime Minister was obsessed with Pakistan and foreign affairs, “forgetting that his core competence lies in economics.”



Javadekar said the Agriculture Minister has become a ‘cricket minister’ busy in ICC (International Cricket Council) elections, instead of tackling the supply side constraints. The Finance Minister, the BJP said, was in ‘constant denial’ mode.



BJP president Rajnath Singh sought a White Paper on the runaway inflation, which he called unprecedented in recent years.



Observers say that the BJP has lashed on to the price rise issue, putting on the back-burner its favourite issues such as the Ram Temple, Hindutva and even the hanging of Parliament attack case convict, Mohd. Afzal. The party is raising the issue of price rise in a big way in the Assembly elections. It started a week long agitation in several parts of the country on Feb. 13 to protest against the increase in the prices of essential commodities.