Politics over price rise

LONG before Rahul Gandhi used the opportunity provided by price rise to target the government in Parliament with the “Arhar Modi” slogan, enough indications were available of a likely spike in prices which the government chose to ignore. During the last monetary policy review the RBI had cautioned on upside risks, including “firming international commodity prices, particularly of crude oil; and the implementation of the 7th Central Pay Commission awards, which will have to be factored into projections as soon as clarity on implementation emerges”. 

Like Rahul Gandhi, Finance Minister Jaitley also played politics when he said: “There was policy paralysis during the UPA regime and we inherited double-digit inflation from the previous government”. The UPA paid the price for its failure on price rise, which was one of the issues on which it was voted out. Despite godowns overflowing with cereals, the UPA did not offload cereals in the market to contain prices. It maintained large stocks to meet a possible surge in demand after the rollout of the legal right to food. Of course, high crude prices also contributed significantly to the over-all price rise. As a fortuitous coincidence, global oil rates started falling with the Modi government taking charge and this had its healthy effect on prices along with the RBI's tight monetary policy. Cheaper diesel and RBI policy ensured the prices did not explode despite two consecutive years of deficient rain. Once again, international commodity prices are on the rise. Before Rahul Gandhi flagged the issue, inflation had touched a 20-month high in June and the blame is attributed to dearer fruits, vegetables and cereals. 

There may be rain-related supply bottlenecks resulting in temporary shortages which traders exploit to their advantage, but these are known issues which crop up ahead of every monsoon. A government which prides itself on its super efficiency and real-time decision-making should have been prepared for such eventualities. Similarly, the gap between domestic demand and supply of pulses is not an overnight development. Import contracts for adequate supplies could have been signed well in advance.