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 | Populism is friend of inflation Our Correspondent After the farm loan waiver, the United Progressive Alliance (UPA) Government was quite bullish about its impact on the forthcoming state and general elections. But the feel-good factor did not last long; it could not have. The threat of inflation came back to haunt the Government. No regime can be comfortable with an inflation rate in the vicinity of 7 per cent. For the UPA Government in particular, it was indeed a huge blow. Having championed the cause of aam aadmi for four years, skyrocketing prices were the negation of all the UPA claims. The reaction has been ludicrously knee-jerk. The Government reduced the customs duty on several crude edible oils to zero, fixed the customs duty for refined edible oils at 7.5 per cent, banned the export of non-basmati rice with immediate effect, and set the minimum export price of basmati rice at $1,200 a tonne. It also decided to extend ban on export of all pulses for a year from April 1. There was also a reduction in the customs duty on butter, ghee, from 40 to 30 per cent; the 15 per cent duty on maize was removed for five lakh tonnes. All these measures may bring down inflation to some extent but it would be sanguine on the part of the Government to assume that these could normalize the situation. The reason is not difficult to find. As Government and ruling party functionaries have said it on more than one occasion, inflation is a global phenomenon. In China, for instance, it is running at over 9 per cent; even in the Western nations, it is on the upswing. According to the International Food Policy Research Institute, while the real food prices declined by 75 per cent in the three decades between 1974 and 2005, in the three years since 2005 they have risen by 75 per cent. In fact, the price hikes have affected nearly every food commodity. The food price index of UN's Food and Agriculture Organization rose by nearly 40 per cent in 2007 and prices in 2008 are higher than they have been in decades. So, in a way, the Government is not responsible for much of its woes. It has, however, faltered on two counts. First, it has not kept its expenditure low; populist steps like the rural employment guarantee programme and the loan waiver have further strained public finance. This translates into higher taxes and, therefore, higher prices. Second, the UPA, by acting as citizens' godfather, has raised people expectations; and they blame it for anything bad that happens. These are the unintended consequences of populism. Posted on : 4/5/2008 Mail this article to your friend |