Financial Daily from THE HINDU group of publications
Friday, Aug 13, 2004
Industry & Economy
Government - Politics
Dilemma over inflation control
Mumbai , Aug. 12
IT is not unusual to find unity in adversity, especially in politics which is known to make strange bedfellows. But in Indian politics, even adversity can fail to forge unity among politicians who are on the extremes of the ideological spectrum, as the country witnessed on Wednesday.
The UPA Government led by the Prime Minister, Dr Manmohan Singh, suddenly finds itself on the defensive as, contrary to expectation, inflation is currently running at a level not seen in recent times - upwards of 7.5 per cent.
A slew of fiscal and monetary policy measures including reduction in customs duty on essential food items is said to be on the anvil.
One would have expected the Government in its attempt to grapple with spiralling prices to speak in one voice; but that was not to be.
The response of at least two key ministers to the emerging situation and their approach to inflation control is clearly incongruous.
If media reports are anything to go by, the Union Finance Minister, Mr P. Chidambaram, is open to a reduction in customs duties on import of essential food items such as sugar and edible oil.
India continues to be a large importer of edible oil while domestic sugar production is down this year due to lower cane output.
Yesterday, even as the Finance Ministry officials were readying themselves to examine the implications of a reduction in customs duties in order to encourage larger imports, improve supplies and rein-in prices, Mr Sharad Pawar, the powerful Union Minister for Food and Agriculture, announced that no duty reduction was warranted and that his ministry had not made any proposal.
This salvo from Mr Pawar could virtually pre-empt Finance Ministry's inclination, if any, to reduce the rate of duty on edible oil and sugar.
However, such a response from the Food and Agriculture Minister is not entirely unanticipated. It should surprise none that the views of the two ministers are conflicting.
Indeed, when the ministers took charge of their portfolios, Business Line in an editorial (BL May 28, 2004) had highlighted the ideological predilections of some important ministers and pointed out how their strong personalities meant inherent contradiction and potential for conflict of views.
What will Dr Manmohan Singh do to check spiralling prices? His task of having to reconcile the conflicting approaches of his ministerial colleagues is unenviable.
It would be interesting to see how he tides over the situation.
Currently, both external and internal factors fan inflationary fires.
Apart from the runaway rise in the price of crude oil that is resulting in imported inflation, fears of the prolonged dry spell for four weeks until end-July hurting the kharif 2004 crop prospects are real. It has no doubt contributed to escalating prices of various food products.
Many years ago when India was a closed economy and there was large-scale hoarding and black marketing of essential goods, a threat of duty reduction, without actually effecting one, used to do the trick of reining-in prices for some time.
Now such a threat may not succeed because dependence on imports has increased, the stakes of importers (limited in number) are high and international edible oil and sugar prices are quite soft.
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