Congress inflation woes get worse

6 April, 2008

Rising Inflation is proving to be a big headache for the ruling United Progressive Alliance coalition.

Data shows that the wholesale price index accelerated to 7.0 percent in the 12-month to March 22, 2008, sharply higher than the previous week's 6.68 percent, and well above market expectations of 6.62 percent. This the second time in a row that inflation has crossed six percent.

The government has been continuously intervening in the market to restrict the upward movement of commodity prices. In end-March 2008, it slashed import tariff of edible oils and banned export of non-basmati rice. The new inflation figure shows that the government measures did not have much impact on the market price.

With elections near, the Congress-led government is not ready to take any risks that may have an adverse impact on its electoral prospects. There are reports that the government may soon announce price sealing for some commodities. Spiraling prices of rice, wheat and other foodstuff, along with sky-high oil prices have contributed to the high inflation rate. With the government liberalizing import of food imports, India’s food bill is expected to sky rocket in 2008.

According to political observers, Congress will have to pay a heavy price for the soaring prices in the country, if it does not succeed in containing inflation. Moreover, the new situation demands Reserve Bank intervention with some solid monetary measures. The market is already feeling the heat due to high interest rates in the country. It is expected that the RBI will be compelled to increase bank rates by at least half percent. But it will hurt the economic growth of the country.

The farming and business community are unhappy over the government’s decision to ban export of food commodities. They fear that it would have an adverse impact on their revenues and have been asking for a market regulated price system in the country.



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