Not a single step which could have had a noticeable impact on food prices, which had been on upsurge since the latter half of 2008, was taken while economic pundits in Government kept setting time-lines for WPI and food indices to fall on their own, aided by nature. There was thus a lack of human approach to a problem which hundreds of low-income millions were struggling to cope with. This made a mockery of “inclusive growth”. An estimate of inflation costs Indians had to bear in three years 2008-11 works out to Rs. 580,000 crores, according to a study by rating agency CRISIL. Rise in household sector goods and services averaged 8.1 per cent in these three years against 4.9 per cent in 2005-08.This runaway inflation may not have hurt sections of people with rising incomes (like organised sector and government employees) but hundreds of millions with low or no incomes bore the brunt, a grim situation ignored by UPA.

The focus all the time being on economic growth, RBI was also under restraint to ensure that growth did not slacken as it went about with its demand-management measures to contain inflation. However, with unrelenting inflation, the WPI index again getting closer to double digit in May, RBI’s tougher stance in its annual policy statement giving primacy to inflation over growth, in the short-term, gained grudging acceptance by Government.

Government sought to maintain a façade of taking “adequate steps” to control prices and cited in this regard its budget commitment to limiting fiscal deficit at 4.6 per cent in 2011/12, which was assumed to have a disinflationary effect. On the contrary, inflation has been on a rising curve over the last three months with the added impact of the surge in international oil and commodity prices. And the long simmering middle class discontent over government failures only helped the anti-corruption crusaders like Mr Anna Hazare and Baba Ramdev to rally civil society heavily behind them.

Even as Government has tried to wrest the initiative in fighting corruption with a firm commitment to legislation to create a Lok Pal in the monsoon session of Parliament, these activists are still on a war path. Meanwhile, the new round of increases in prices of diesel, LPG and kerosene, long expected and however justifiable on economic grounds, looks like adding fuel to the fire and will have a cascading effect on the already elevated inflation, inevitably triggering country-wide protests by opposition parties and UPA allies.

The fuel price hike would push inflation into double-digits, says Dr. C. Rangarajan, Chairman of PM’s Economic Advisory Council, though he believes it would be a one-time surge to 10 per cent in July whereafter it would remain at 9 per cent till September and ease to 6.5 per cent by March next. Rise in international oil prices left no option to Government other than to hike the prices of products to reduce the ongoing under-recoveries of cost by oil companies, he said.

BJP has charged Government with being “insensitive” to the sufferings of the people and being “clueless” about combating inflation. The Finance Minister Mr Pranab Mukherjee, who made some duty cuts in POL, for the first time, to keep down the price increases, has asked state governments to reduce their taxes or cesses to “reduce the burden on the common man”. While there cannot be indefinite subsidization of oil products, Government has been on a path of blunders from the beginning, having failed to deregulate prices when the international situation was more favourable. Subsidy could have been strictly limited and targeted for the poorest.

Government missteps, inter-ministerial wrangles, a pervading sense of drift, stagnation in industrial output and slowdown in investment, falling inflows of capital, especially foreign direct investment and the changing investor perceptions on India’s economic management, and corruption turmoils have all combined to dent the image of UPA-II, which had only recently trumpeted its first two years of “achievements”. Now, it is waking up to realize how much ground it has lost, throwing the polity into new uncertainties before 2014 when UPA’s second term expires.

It is not only the opposition parties but several distinguished persons who have held high offices have been somewhat dismayed by lack of governance writ large in the way 2G and other scams tumbled around, besides inflation. Decision-making in general, and reforms in particular, seemed to have come to a halt. Dr. Bimal Jalan, former Governor of RBI, in a press interview recently called for a “concerted approach to tackling inflation and definitive action, no matter what happens to growth in the short term”. Whatever needed to be done in monetary, fiscal and trade areas must be done to bring down inflation, he said..

After the political eruptions of the last three months and the beating it took from the electorate, especially in Tamil Nadu, the Congress leadership now seems seriously intent on stemming the rot by initiating some of the promised steps to improve the investment and business climate and politically resist the fringe (civil) groups backed by RSS and BJP in a game of “destabilization”. Faced with an array of challenges and to give itself more time to face Parliament, the monsoon session has been deferred to the beginning of August.

The delayed reconstitution of the Cabinet was being hastened as a first step. The Prime Minister Dr. Manmohan Singh, who has taken much of the battering of Government, with characteristic calmness, is now expected to re-energise key ministries, especially infrastructure-related, and tone up his own Secretariat to become more vigilant. Problems of lack of oversight have been laid at its door.

There are major shortfalls in power generation targets of the 11th plan due to project delays while the demand-supply gap for coal has been widening with looming shortages in the 12th plan. These are being reviewed by the Prime Minister. A new manufacturing policy has been vetted by the Prime Minister to raise the share of industry in GDP to 25 per cent b 2025. Displaying a new sense of decision-making, the Finance Ministry has announced norms for setting up of Infrastructure Debt Funds (IDF) with incentives to attract off-shore funds and opening up of Mutual Funds for Qualified Foreign Investors upto a limit of ten billion dollars at present.

Finance Minister Pranab Mukherjee’s current visit to Washington for the Indo-US Economic Dialogue was timely for Government to reinforce India’s unimpaired strengths as investment destination and assure American businessmen of Government’s commitment to implement soon reforms in the financial sector which are keenly looked for in USA, especially in banking, insurance and pension sectors. Liberalising FDI in the retail sector for multi-brand is also envisaged.

Government has planned to put through the pending financial sector bills in the monsoon session along with the more politically-demanding legislation for a Lok Pal, land acquisition and food security. BJP is determined to target Government on a variety of issues and attack the role of some of the Ministers in relation to the spate of scams. In the face of a combined onslaught by the opposition, Government would be hard pressed to evolve a consensus on the reform measures as well as the women’s reservation bill, in particular. How far Government would succeed in bridge-building to get vital legislation through remains to be seen. (IPA Service)