Hindustan Times
Populism, inflation and a budget
Indian finance minister, Pranab Mukherjee, presented a budget for fiscal 2011-12 that carried an embedded message: it’s inflation, stupid. Rising prices are India’s number one economic and political problem.
The figures he presented were striking. He promised to hold government expenditure to only three per cent more than last year. The figure was nearly 20 per cent the year before. Factor in inflation and Mukherjee was, in fact, promising to shrink government spending by three or four per cent in real terms. Part and parcel of this were some extraordinary promises: subsidies would actually fall by 140 billion rupees. And reduce the government’s fiscal deficit by nearly two per cent of gross domestic product.
These are amazingly difficult circles to square. Is the National Advisory Council, the unofficial Ministry of Populism, closing shop in coming months? But more importantly is the fact India has never been able to do things like slash the fiscal deficit by such a huge amount or contain government red ink enough to fulfil its own deficit predictions.
So one should expect a supplementary budget later on in the year. But what the Indian budget has shown is that what weighs on the minds of New Delhi right now is the seemingly inexorable rise of prices.
The problem is that the government can’t do too much about inflation. There seem to be a number of reasons why prices are jumping. One of them is the government’s explosion of spending over the past few years. Another is the broad rise in incomes among Indians. The other is straightforward supply-demand bottlenecks. It goes on.
Mukherjee laid out the government’s intentions on how to slay or at least cripple the inflation beast. One is obvious: restrain its own runaway spending and reduce the monetary side of things. The other is in the form of reforms like the general sales tax, foreign direct investment in retail and so on with the eye of reducing internal barriers and domestic inefficiencies that contribute to rising prices.
The question now is whether the weakening government of Manmohan Singh will be able to implement its own budgetary suggestions. It hasn’t been able to deliver on most of its other promises.
Implementation is political rather than economic. The positive point of view is that in the coming four big state elections, Congress will sweep Kerala, limit its losses in Assam and see an ally do well in West Bengal. An ally may also hold its own in Tamil Nadu. Then the party will be emboldened enough to let Singh do more of what he wants.
The negative view is that the United Progressive Alliance will fare poorly and strengthen the Congress party’s view it needs to focus on welfare spending and other populist measures. Inflation is a given so the solution is to focus on distribution.
My suspicion is that food inflation at least is here to stay for the next several years. India can ease rising prices in other areas if it builds additional capacity in other areas like steel, cement and so on. The political response to this will determine whether the Singh government can do something worthwhile for India’s long-term economic prospects. Or whether it will be populism, stupid.
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Simaljit Sandhu Reply:
August 26th, 2012 at 1:40 am
Aseem, I don’t know what are you talking about when you say that “Indian’s who live in Brampton are unfamiliar with downtown.” That is quite an assumption, and more specifically stereotyping. I am aware and in contact with many Indian senior citizens that travel all over Canada with their clubs. Many Bramptonians work downtown. It is a shame that you say you don’t like to visit Brampton, because too many indians live here. Ethnic enclaves are all over Canada like Indian populations who primarily reside in Brampton, Surrey, Montreal. However, it is not just Indians. Many other cultural groups decide to live in similar areas (i.e., Woodbridge is home to a large Italian-Canadian population). Seems like you are not proud to be an Indian feel sorry for you. WE love our Brampton.
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Guest Reply:
August 26th, 2012 at 2:05 am
I guess I’ll have to move to Brampton to prove my patriotic colours! Why not move back to India to show greater colours.
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