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Tuesday, Oct 26, 2021
Outlook.com

A Price To Be Paid

The Government has little room for manoeuvre in Budget '96. Almost whatever it does, it appears, will raise inflation.

A Price To Be Paid
A Price To Be Paid
outlookindia.com
-0001-11-30T00:00:00+05:53

A functional anarchy, commentators felt. Political pundits harked back to history and gave the government at best six months more. Realpoliticos gravely shook their heads and pointed to the inevitability of the situation. Chambers of commerce warned of serious economic distortions. And the middle class votary, organised labour and farm lobbies descended on the streets with extremely vocal protests.

Rarely has so much heartburn been caused so widely by a government move as the recent petroproduct price hike, which has let loose visions of high and higher-cost days to come. Says RPG Foundation director-general D.H. Pai Panandiker: "The fuel price rise marks the beginning of a new inflationary phase." Echoes M.G. Damani, president, Bombay Stock Exchange: "The hike will have a domino effect on most commodities." With the National Council of Applied Economic Research (NCAER) predicting a direct impact of 0.92 percentage points and a cascading effect of 1.4 percentage points in the inflation rate over the shortto medium term, and the Union Budget looming threateningly ahead, it seems the economy is back on the brink of a double-digit inflation and soaring prices.

Is it really? Says B. Bhattacharya, dean, research, Indian Institute of Foreign Trade: "A budget is one of the many instruments that trigger inflation, which is generally expectation-induced." For instance, vegetable prices went up in the capital a few hours after the petrol and diesel prices were raised, primarily on the expectation of higher costs. Explains Rakesh Mohan, director-general, NCAER: "A lot of money will go to feed the new prices, leading to a fall in demand for other commodities.

This results in net contractionary conditions." The economic tasks ahead of the Deve Gowda Government are multifarious and massive. It has to reduce the...

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