06-23-2008, 02:46 AM
<!--QuoteBegin-->QUOTE<!--QuoteEBegin--><b>Dr 11 per cent </b>
The Pioneer Edit Desk
Manmohan must call polls
In a season when inflation has been on an inexorable forward march, it was only to be expected that it would touch double digits at some point. Admittedly, this happened about a week or two earlier than anticipated. This past Friday, the inflation index jumped to 11.05 per cent, the highest in 13 years. <b>The spectre of stagflation -- of a tapering growth rate combined with inflation -- haunts the economy, bringing back memories of the fallow 1970s</b>. For the generation that started going to work after liberalisation and 1991, this is the first experience of a price shock. It will take some getting used to, and will demand a price: In terms of growth rate, sentiment and politics. The third is particularly crucial as, in an election year, <b>the Government seems to have lost control and appears paralysed by inflation</b>. Admittedly, the major factors driving inflation are beyond domestic control. There is little the UPA Government could have done to prevent the surge in international oil prices, for example, or the drought in Australia that led to a global wheat scarcity. Yet, where the Government has made spectacular mistakes is in promoting a culture of profligacy. <b>Statistics establish a direct correlation between States where outflow of National Rural Employment Guarantee Programme funds has been highest and inflation</b>. From loan waivers to expending handsome, unprecedented tax accruals on wasteful giveaways, the UPA has squandered money and triggered a fiscal crisis. The money could have been better spent, for instance, in infrastructure augmentation that would, in turn, have spurred further growth. In terms of commodities like cement, the Government is a beneficiary of price hikes because it calculates excise duties ad valorem. If it wanted to reduce prices, it could simply have cut excise duties -- but that would have entailed genuine belt-tightening, rather than a bogus austerity regime. Such steps wouldn't have completely rolled back inflation, but the economy would still have been booming, incomes would still have been rising, the demand curve would still have been moving up. Instead, having first poured liquidity into the market with its populism, the UPA is now squeezing growth with exorbitant interest rates. Pessimism is breeding pessimism and the economy is entering a medium-term vicious cycle.
The Congress is responding with panic. With its twin planks of deft macro-economic management and concern for the common man (the 'aam admi') having been knocked down, <b>the ruling party is unsure of when to time the election</b>. Will the storm pass or does worse lie ahead? A good kharif crop may see rice prices fall, but other commodities, from steel and cement to pulses and edible oils, will not be tamed as easily. Meanwhile,<b> the Prime Minister has gone virtually incommunicado</b>.<b> He has decided he can't do much about the economy so he may as well resort to brinkmanship on the nuclear deal.</b> The Left is up to its usual coercive tactics. UPA allies say one thing one hour and the other the next. As for Ms Sonia Gandhi, nobody knows her mind. With this political configuration in charge, inflation cannot be combated. Political instability will only breed further problems. The answer lies in a fresh start and, inevitably, another election. The Manmohan Singh Government has outlived its utility. It can't douse the fires, so let it leave the kitchen. <!--emo&
--><img src='style_emoticons/<#EMO_DIR#>/biggrin.gif' border='0' style='vertical-align:middle' alt='biggrin.gif' /><!--endemo-->
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The Pioneer Edit Desk
Manmohan must call polls
In a season when inflation has been on an inexorable forward march, it was only to be expected that it would touch double digits at some point. Admittedly, this happened about a week or two earlier than anticipated. This past Friday, the inflation index jumped to 11.05 per cent, the highest in 13 years. <b>The spectre of stagflation -- of a tapering growth rate combined with inflation -- haunts the economy, bringing back memories of the fallow 1970s</b>. For the generation that started going to work after liberalisation and 1991, this is the first experience of a price shock. It will take some getting used to, and will demand a price: In terms of growth rate, sentiment and politics. The third is particularly crucial as, in an election year, <b>the Government seems to have lost control and appears paralysed by inflation</b>. Admittedly, the major factors driving inflation are beyond domestic control. There is little the UPA Government could have done to prevent the surge in international oil prices, for example, or the drought in Australia that led to a global wheat scarcity. Yet, where the Government has made spectacular mistakes is in promoting a culture of profligacy. <b>Statistics establish a direct correlation between States where outflow of National Rural Employment Guarantee Programme funds has been highest and inflation</b>. From loan waivers to expending handsome, unprecedented tax accruals on wasteful giveaways, the UPA has squandered money and triggered a fiscal crisis. The money could have been better spent, for instance, in infrastructure augmentation that would, in turn, have spurred further growth. In terms of commodities like cement, the Government is a beneficiary of price hikes because it calculates excise duties ad valorem. If it wanted to reduce prices, it could simply have cut excise duties -- but that would have entailed genuine belt-tightening, rather than a bogus austerity regime. Such steps wouldn't have completely rolled back inflation, but the economy would still have been booming, incomes would still have been rising, the demand curve would still have been moving up. Instead, having first poured liquidity into the market with its populism, the UPA is now squeezing growth with exorbitant interest rates. Pessimism is breeding pessimism and the economy is entering a medium-term vicious cycle.
The Congress is responding with panic. With its twin planks of deft macro-economic management and concern for the common man (the 'aam admi') having been knocked down, <b>the ruling party is unsure of when to time the election</b>. Will the storm pass or does worse lie ahead? A good kharif crop may see rice prices fall, but other commodities, from steel and cement to pulses and edible oils, will not be tamed as easily. Meanwhile,<b> the Prime Minister has gone virtually incommunicado</b>.<b> He has decided he can't do much about the economy so he may as well resort to brinkmanship on the nuclear deal.</b> The Left is up to its usual coercive tactics. UPA allies say one thing one hour and the other the next. As for Ms Sonia Gandhi, nobody knows her mind. With this political configuration in charge, inflation cannot be combated. Political instability will only breed further problems. The answer lies in a fresh start and, inevitably, another election. The Manmohan Singh Government has outlived its utility. It can't douse the fires, so let it leave the kitchen. <!--emo&
--><img src='style_emoticons/<#EMO_DIR#>/biggrin.gif' border='0' style='vertical-align:middle' alt='biggrin.gif' /><!--endemo--> <!--QuoteEnd--><!--QuoteEEnd-->