Trade
unions from across the political spectrum are agitating over
inflation in a rare display of solidarity in a week (20) ahead of what
is widely expected to be the United Progressive Alliance’s most austere
budget. Timed to coincide with the(40) commencement
of the budget session of Parliament, the two-day countrywide strike ignores an
appeal by Prime Minister Manmohan Singh to (60) call it off. The impact is mostly being felt in the
transport industry which will be affected by a recent (80) decision to allow
diesel prices to creep up to phase out the government subsidy on the fuel. Swelling subsidies, including (100) a
proposed one on food entitlements, have bloated the fiscal deficit to
twice as much as the long-term target.
(120) Finance Minister P Chidambaram has announced a five-year schedule
to cut the deficit to 3%, beginning with next week’s budget. (140)
He
must stay the course on deficit reduction.
The inflation that is agitating the unions is partly a result of (160)
government profligacy. India’s expansionary
fiscal stance has not reversed after it climbed out of the 2008 global
financial crisis, despite (180) the central bank squeezing credit out of the
system to arrest a persistent price rise.
The contradiction in monetary and (200) fiscal policy has crowded out
productive investment, which is showing up in the economy’s growth rate that
has fallen to (220) a decade’s low. It
is imperative that the government now keep its part of the bargain and
reduce the twin (240) deficits- fiscal and trade. Pressure by unions affiliated to the
Opposition Bharatiya Janata Party, the Left and the ruling Congress (260)
should not force the government’s hand on whittling down unnecessary subsidies.
The
UPA’s welfare agenda, for all its ambition and (280) good intention, will
not be able to withstand the effects of persistent inflation. Real incomes of the majority of voters
(300) in next year’s general elections have been declining during the UPA’s
second term in office. The unions are
protesting against (320) the symptoms, the government must address the
disease. Immediately, that means healing
the exchequer. Over a longer horizon, it
also (340) involves improving farm yields and making Indians pay for the fossil
fuel they burn. Delayed reforms like
allowing foreign supermarkets, (360) freeing transport fuel prices and pricing
electricity rationally are a beginning.
There is scope to introduce capital into agriculture by (380) removing inefficiencies
in production and distribution. The
approach must shift from subsidizing farmers to enhancing farm investments and
providing more (400) factory jobs to drain the excess labour pool from
agriculture. Structural inflation is not
going to go away with quick-fix solutions. (420)
