ET ARTICLES

Losing the plot

Posted on January 12, 2011 | View 307

Inflation has shot through the roof, pinching the common man hard. ET does a reality check of how policy makers, assigned with the task of handling prices, have made their assessment on the price situation over the past 18 months. The actual outcome has, however, turned out to be harsher than expected.

artical Picture

The perilous course 
The 2008 credit crisis exposed the financial whizkids on the Wall Street who hardly had an idea on where their acts were taking the financial markets. Years of booming markets made them complacent to risks that were building up in the system. Few saw the apocalypse that collapsed many venerable institutions. 
    
Indian policy makers' forecast of the situation, especially inflation, turns out to be more of a guesswork than scientific analysis. While many blame mismanagement for soaring prices, be it food or otherwise, a revisit to what many masters have said, shows they failed to forecast accurately.
 
Many a jargon were used to explain it at different times, including: it is supply side factors; it is cyclical, it is seasonal, it is structural, demand-pull, cost-push and many more. 
    
None of these matter to an autorickshaw driver on the roads of Chennai, or a panwala in a dirty Kolkata bylane. All that matters to them is that they are forced to consume less and sacrifice festivities. How much does the rupee note buy for me now is the question on everyone’s mind.
 
Its value has been sliding and there are no signs of that stopping anytime soon. Much of it was masked by record growth, but Indian voters are unforgiving when it comes to inflation, which everyone knows.


Rain gods may have spoilt the show
Manmohan Singh, Prime Minister
 
July 2009 
India’s inflation rate will ease to 6% by December 2009 as normal monsoon helps moderate food prices



Inflation control not at the cost of growth 
Pranab Mukherjee, Finance Minister 
 
Sep 2009 
We need not be unusually worried over the availability of food grains 
 
May 2010 
Inflation is “an area of concern, but I’m not pressing the panic button
 
August 2010 
If interest rates are hiked abnormally, there will be no investment, there will be no growth... If I compromise my economic growth, I can surely control inflation



Talking down inflation: It isn't working yet 
Montek Ahluwalia 
Deputy Chairman, Planning Commission 

April 2010 
India’s inflation rate may decline in two to three months 

July 2010 
Inflation may return to a “comfortable level” by the end of the year (December)
 
August 2010 
There is a moderation in the rate of inflation underway and it will become quite comfortable by December ...The movement is in line with what we have been arguing.



The 5% average still seems a long way off 
Ashok Chawla 
Economic Affairs Secretary, Finance Ministry 

May 2010 
We hope to get back to average inflation of about 5% to 5.5% by the end of 2010
 
Nov 2010 
Overall inflation is likely to fall below 6% by March from 8.62%..It is falling and definitely headed to where RBI has projected it would be by March 2011 (5.5%)



Blame it on global trend, commodities 
Duvvuri Subbarao Governer, RBI 

October 2009 
July 2009 review projected WPI inflation for March 2010 at around 5%
 
January 2010 
In view of the global trend in commodity prices and domestic demand-supply balance, inflation projection for March 2010 is raised to 8.5% 

July 2010 
The baseline projection for WPI inflation for March 2011 is raised to 6% from 5.5%



Price rise way beyond the script 
Kaushik Basu 
Chief Economic Advisor, FINMIN 

May 2010 
The rise in prices will likely be around 6% to 7% in the next three months 

January 2011 
We want to roll back the stimulus... So you will see steps being taken this year, next year and maybe the year after



The lag effect just doesn't seem to work 
Subir Gokarn Deputy Governor, RBI 

June 2010 
"Reasonable" rains this year will slow food-price inflation, which has remained above 15% since November 

August 2010 
We think we have done enough to manage inflation and we expect to see the effects of this in the second half of the year, because actions act with a lag.
 
Higher prices singe home budget
 
From Ahmedabad to Kolkata, rising inflation continues to wreak havoc, and it’s the man on the street who is taking blows after blows

Amjad Khan 32, Rickshaw Driver, Ahemdabad 
With increasing inflation, traffic cops too want bigger bribes. Instead of 20 a week for parking auto rickshaws at prominent locations, we have to pay 20 per day.
 
My operational costs have soared in the past few years, and stringent traffic rules are making work miserable. All traffic rules are imposed on auto rickshaws only and they do not apply to the increasing number of luxury cars.
 
Subhash Behera 30, Pan Shop Owner in Kolkata 
I have avoided visits to my native place to see my children and wife for the past 19 months because I will not be able to face my children who are demanding a colouring book, pencils and a fancy dress since Diwali.
 
I have reduced my intake of meat and even onions so that my mother, wife and two sons can meet their expenses. I don’t give in to the temptation of buying a saree for my wife because I cannot afford it.
 
K Murthy Auto Driver in Chennai 
There were days when I earned 200-300 per day, but still managed a decent meal. But now even 400 is not enough.
 
Milk, petrol, costs of everything have gone up and in turn I have to charge more from commuters. Commuters vent their anger on me, saying all prices are ris ing.
 
The next time when I go to the ki rana shop, the prices are higher and don’t come down. In India, things will never change.
 
Ramattar N Kori 52, Runs a kiosk at IIM Ahemdabad 
The adverse impact of inflation may not be visible on streets and malls. But it’s very much present at home. I had never planned in my life for finances for tomorrow.
 
I sat with my family members last week only and decided to start making a budget to meet the expenses.
 
The government is announcing schemes, but it’s not reaching the common man. Either the plans are only on paper or the government does not have the right kind of manpower.


 

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