Inflation, nuclear deal, and elections

For the government the picture is bleak on all fronts – the relentless northward march of the inflation, the ugly stand-off with the left on the nuclear deal, and the inability to plunge for elections because of heavy odds stacked against it [Image above from TT].

The inflation is high for many reasons. Experts say one of the main causes is high economic growth because of which a section of populace is flush with money to spend on whatever they wish to.

This has resulted into strong demand for items like steel and cement and has gradually spread into similar demands for other commodities.

Economists opine that inflationary pressure is a pain that is inevitable at early stages of economic growth. This time the skyrocketing international crude price has added fuel to the price-rise fire.

As if these are not enough, the Indian rupee is also sliding against US dollar, and in fact the RBI reported a whopping dip in FE reserves by $4.96 billion in the week ended June 13 presumably because RBI wanted the rupee not to breach the 43-mark against the dollar (ref: ET, June 21).

Turning to nuclear deal, the scene is getting murkier by the day. The equations among political parties at the center are rapidly changing even as the 2 principal opponents, the Congress and the Left, are circling around the final push whatever that is.

Mirroring the all-round negatives, the stock market too has plunged so deep that all the money one made till December last by holding stocks has evaporated into thin air.

Given these conditions, what are the likely future courses? Let us look at certain important issues.

For one what is notable is that even though the prices of many items have indeed increased those of food items more or less remained stable. This is a good sign because people can curtail other spending but not food.

Second, the rains are good so far and expected to be so. If that happens, chances are the inflation monster can be controlled by the time the festivities start in October.

Third, in sharp contrast to India Shining campaign by the previous regime, the government this time is actually trying to improve the conditions of the rural poor like the 100-day employment scheme. It remains to be seen though as to how the Congress party can translate these pro-poor actions into votes.

Fourth, whatever the Left and the principal opposition party say, the nuclear deal is supposed to be good for the country if only because it has gone through so much close debates that it will be suicidal for the government to pass it through if it has serious lacuna as the BJP says.

Besides, countries like Russia have openly said the deal is good for India. Experts say that similar pact between US and China doesn’t have many leeways that US has agreed for India.

If the nuclear deal succeeds, it has the probability of attracting huge investments in the infrastructure sectors that can catapult India’s economy by leaps and bounds.

True, many of these investments will be by US behemoths, which is perhaps why the Left parties are so much against the deal. Maybe they feel that too much US presence may wither away whatever influence they have in certain pockets in the country.

Summing up, elections look imminent toward the end of the year. The government will not announce elections unless the spell of good monsoon – should that occur – is over and the inflation is somewhat under control.

If an announcement is made in September, count 45 days from then. And we’ll see the electoral slugfest for ruling the country once again, about the same time the US elects either John McCain or the talented young Democrat, Barack Obama as its next president.