How to use a 145;crisis146;

Now look at the current implication of that history. Many reform policies have got stuck in various forums including the legislature. Couldn8217;t the current 8216;crisis8217; have been an opportunity to, not stall change, but to accelerate it? Mortgaging of gold reserves in the early 1990s caught public imagination and taught us the need for changing the way we did our business. The political anxiety over inflation could have been used to bring home the truth that without the reforms in retail, financial sector and agricultural policies, we simply tackle price rise. And remember many of the same people who ushered in reforms are in power again today.

But what have we got from them? A ham-handed set of measures including a clampdown on the export of commodities, a ban on commodities futures on the specious argument that they stoke price rise and sectoral price micro management: All of which are a throwback to the license-control raj. Finance ministry officials acknowledge that the directions for some of these measures emanated from outside the North Block.

No wonder, speaking on Friday, when WPI based inflation touched 6.46 per cent, the finance minister could pin hopes only on improvement in supply of agro commodities in the next few weeks, allied with monetary management to moderate prices. Just tweak the money supply problem and get some more bales in the market, and hey presto, the problem is fixed.

The bad news is the trend set by the current policies could come back to haunt the nation later. If the Finance Bill can be used today to set prices of a commodity, it can also be used to decide pretty much anything in the economy, using the sovereign taxation rights of the government. Once industry accepts that price controls and state interventions on supply side are par for the course, then few companies will use booming demand conditions as a time to take investment decisions. They will play around with shortages, instead.

There are other complex signs the government has missed. In districts where the UPA8217;s flagship social scheme, the National Rural Employment Guarantee Programme NREG, has got going, prices have risen, because wage labourers have begun visiting shops more often. Studies done by Shubhashis Gangopadhyay for the IDF has shown that in Andhra Pradesh for instance, where there has been a big disbursement of funds, the consumer price index for agricultural labourers has shot up above 7 per cent, compared with next door Kerala, where it is at 3 per cent; Kerala is among the poor performers in NREG.

This fact puts a different face on at least part of the inflation story. Rural workers buying more is a success, even if the relevant price index is going up. Once that is recognised, different policy ideas would have come. Or may be, it is just as well this was not recognised. The government extended NREGA to 130 other districts. Had the rural workers price index data been internalised, some panicky reaction may have prevented the extension of this most commendable programme.

The government can argue that 8220;command and control8221; measures have been taken by a host of economies like Mexico, Venezuela, Argentina and Malaysia on food and staples and even Dubai and Qatar on house rents. But all indicators show that these have been equally ineffective in stemming inflationary expectations.

The writer is editor, economic affairs, 8216;The Financial Express8217;