Deadlock For The Indian Government
When recovery seemed just around the corner, the spook of inflation flashed its grim face, and lo, all was stalled (or so it seems). While UPA government deserves credit for turning the economy around palpably well, it’s also being reviled for letting the commodity prices go sky-rocketing. Such are the circumstances that the FM, Pranab Mukherjee will find it hard to sleep before the final framings and verdicts regarding the Union-Budget 2010-2011 are shaped. For the time being, he’s busy tackling the salvo of “Bring-Inflation-Down”.
"At 7.31 per cent, the headline inflation rate has crossed the RBI's projected rate of 6.5 per cent for March-end," says Amit Mitra, secretary general, FICCI.
It’s noteworthy that inflation is a sign of growth in economy but only when it’s a healthy one. High inflation rates can curb consumer spending beyond control and would stall progress. Thus bringing it down is vouched for by many to be the new budgets priority.
"Inflation is a matter of concern, and cooling prices a priority on industry wish list", avers Mitra.
Now What’s The Deadlock?
India, just to remind you, is still reeling under a tangible fiscal deficit (6.8%). The reason why the much fuss in the industries about cutting-down the MAT rates and extending tax-holidays ain’t being given much attention is that India wants to refill its coffers. In its attempts to redirect our country on the GDP growth trajectory of 9%, it needs funds to lend a hand to the hard-hit-sectors. That’s the reason why the government has chosen to be silent for a while. On the other hand to counter inflation, it’s chosen the Demand-Side-Management rather than the Supply-Side one. Raising the CRR by 75 basis points is due to suck out Rs 36,000 crores (Rs 360 billions) and would check demand up to some extent that’ll in turn check inflation.
It’s probably because of the same, saving funds, issues that the government has chosen to let agri-prices rise to cater to the needs of farmers rather than going for the Supply-Side-Management which it could do by providing a fillip to the agriculture sector outputs (which would have the same pro-farmer effect but would call for government spending).
Now that’s what needs to be noticed. Agricultural and other commodities are registering snowballing prices and inflation is looming high and still government is desperate on its way to shirk-off fiscal deficits and can’t adopt the required measures.
In other words : It’s a Stern Deadlock.