By not passing on price rises in the past, the government only delayed their passage through the economy. This will happen over the next few months and this time it will be beyond the government’s control. The unorganised and organised sector will also be passing on these costs. Given the poor rains in western India, the rising trend in commodity prices, and the impending hike from major steel producers, there is little that the government will be able to do. The best that can be hoped for is that food and commodity prices stabilise in the next few months, which may very well happen due to good monsoons in north and east India.

The current inflation was expected, predicted often (including in this column), and at least the key players in the government had more than an inkling. But they did not want to assert themselves. This was a mistake: not only was it dereliction of duty, but now the Congress will go into election season with ever-increasing prices. 

Had the government kept a tight leash on its expenditures, used its money carefully and not thrown it away on leakage-prone schemes and ensured increases in agriculture sector investments (something that we have not for the past two decades), inflation would not have been as high, and much more in line with other countries, even if prices of oil products were passed on as they were felt internationally. To give some figures, developed countries’ inflation rates even in these times are typically less than 4 per cent; inflation in India is far greater. Though government data shows inflation to be in the 12 per cent range, it is actually more likely to be in the 15-20 per cent range. (The government cannot underestimate inflation for long, and keeps on revising its old figures upwards.)

... contd.