UPA’s twin problems

The biggest problems of the United Progressive Alliance (UPA) government, less than two years into its second term, can be summarised in two words: corruption and inflation. How the government handles these two issues during 2011 will to a great extent determine its fate over the next three years. The incumbent regime is lucky that the political opposition on the Right and the Left are in disarray. This is why those in power can get away threatening to conduct a mid-term poll which nobody wants. But those in the Manmohan Singh government would be fooling no one but themselves if they believe they can continue to push their luck by dealing with the issues of corruption and inflation in a desultory manner as has been done so far.
For a government headed by an internationally-renowned economist whose words of wisdom are listened to with rapt attention in G-20 meetings where the post-recession woes of the world are discussed and debated, his failure to control inflation at home is truly paradoxical. What is worse is that the current phase of inflation in India is driven almost entirely by high food prices that directly kick hard on the bellies of the economically disadvantaged. Why just the poor, food inflation is today pinching the pockets of the middle classes whose real incomes are getting sharply eroded by rising prices of edible products, depriving them of participating in the famous Indian growth story that has attracted investors from across the globe.
Even foreign institutional investors who have poured in record amounts into the country’s stock markets realise the constraints and limitations of economic growth that is still far from inclusive, job-creating and spread unevenly across geographical regions and sectors. Notably, the agriculture sector remains sluggish.
Those who breathlessly track the movement of the sensitive index of the stock exchange at Mumbai would have noted that the sensex is yet to cross the peak of 21,000 that it had touched almost exactly three years ago in January 2008. One is not suggesting here that share values accurately reflect the state of the economy — far from it. Yet, the country’s capital markets are finding it tough to recover lost ground despite the fact that India was spared the worst ravages of the international economic crisis.
Corporate captains are not exactly overjoyed at the hardening of interest rates. But they realise that the Reserve Bank of India has little choice in the matter. As finance minister Pranab Mukherjee starts preparing the proposals for the Union budget of 2011-12 that is due to be presented at the end of February, the big headache nagging him is inflation that refuses to subside. He has acknowledged that the government’s calculations have gone completely awry. It is also now not that easy to convince the proverbial aam aadmi about how the government is trying to control inflation. Even if the rate of increase of the wholesale price index and the consumer price indices decelerates in the coming weeks — as it undoubtedly will — it does not mean food prices will come down.
The inability of different wings of the government — for instance, the ministries of agriculture, consumer affairs, commerce and finance — to coordinate their activities and put in place early-warning systems that can anticipate price spikes, has become rather apparent.
The government acts in a knee-jerk manner, desperately trying to douse inflationary fires after they have begun raging. The way in which imports and exports of sugar were mismanaged in 2009 clearly held no lessons for the ministries headed by Sharad Pawar.
The same story has been repeated in the case of onions and it is difficult to believe that there are no bright bureaucrats left in Krishi Bhavan who could not have foreseen that onion prices would shoot up from `4 a kilogramme to over `40 a kg in barely six months.
In 2009, the country’s electorate voted for stability and gave the second UPA government a more comfortable mandate. The Prime Minister was perceived as a person whose policies protected the country’s economy from the global financial meltdown. The same voters may not be so charitable a second time round. Those in government can scarcely become complacent about the fact that the next general elections are scheduled for the middle of 2014. They are currently preoccupied with dispelling the perception that this government is corrupt to the core, that Dr Singh was not atrophied into a state of inertia as his former Cabinet colleague, the then minister for communications and information technology Andimuthu Raja was ripping the exchequer off unbelievably large sums of money.
The spectrum scam will not disappear in a hurry even if the government concedes the Opposition demand to set up a Joint Parliamentary Committee, which it currently appears most reluctant to do.
Like the Bofors scandal haunted the Rajiv Gandhi government and paralysed its functioning between 1987 and 1989 although nothing was conclusively proved in a court of law, the current government acted too late in containing the fallout of the scandal relating to the under-valuation of misallocation of scarce and valuable electro-magnetic spectrum used by mobile telecom companies. The corruption in the way the Commonwealth Games were conducted and the Adarsh Housing Society scandal are part of the same pattern. What was going on was known to many in government but they chose to turn a blind eye — until the scandals became too big to ignore. More scandals are likely to be resurrected: the non-basmati rice export scandal is one for which the then commerce minister Kamal Nath is yet to provide a credible explanation.
The government is desperately hoping it will be able to ride the storm over the next six months or thereabouts.
The first challenge will be to ensure that the budget session of Parliament is conducted relatively smoothly. Once the outcome of the state legislative Assembly elections in West Bengal, Kerala, Tamil Nadu and Assam are known in May, the Congress and the UPA hope to get a new lease of life (as the Left is certain to perform poorly in its two bastions in the south and the east).
Till then, the government hopes to plod along, confident in its belief that a weak opposition is its greatest strength.

Paranjoy Guha Thakurta is an educator and commentator