Politics of prices

Economic theory tells you that as you climb up the income graph, the proportion you spend on food goes down. But in a short span of time, with a fixed income, the food budget can play havoc with what you may have to play about with. And that angers people. An estimate for inflation in nine Latin American countries estimates that inflation in the ’80s grew by 160 per cent per year, and in the first half of the ’90s, by 235 per cent per year. So much so, that in order to avoid making a mockery of the currency, it had to be changed. Not just a currency, but a new word — hyper inflation — was used to capture the phenomenon. There were riots in Venezuela in 1989, and martial law had to be invoked to quell protests in

Argentina that year.

Prices spiralling out of control seemed to reflect incompetent policies and corrupt officials. Even the International Monetary Fund writing in February 2005 about the Latin American experience — where inflation seriously undermined public confidence in policies and governments — warns about the need to keep the average consumer protected: “in a few countries, there has been a growing militancy among disenfranchised groups”. The Latin American experience may seem a long way off from the Indian one, and one is not suggesting that politicians are going to be pelted with tomatoes (they are a bit too expensive for that) and that riots will break out, but even in countries like the United States, that profess to have a hands-off approach to the economy, a Federal Reserve chief’s ability to keep inflation rates under check continues to be an important part of his CV, and governments closely manage that one variable — inflation or prices. Perhaps they are more sensitive to its political impact than our political managers seem to be. Because, even closer home, rising prices have never helped governments, and have also gone on to shake public confidence in the government being in control. The ’98 state elections in North India, especially Delhi, virtually turned on the humble onion. Its prices touched the roof and elaborate theories were crafted to explain them as a will-go-away thing. Whatever the facts of the matter, the verdict was loud and clear, and the governments presiding over the high price of onions were swept out of power.

Maybe politicians get a little irritated by what they see on television each day — housewives registering unhappiness while buying brinjals and beans and then proceeding to hold forth on how badly they think things are being managed or how apathetic the government is. But then, as Mahatma Gandhi caught on — in the simple tax being levied on salt, consequently a higher price for salt, the essence of Indian pride and injustice — even the average Indian draws conclusions about complex (and often little-understood) economic policies, the state of governance and the government’s abilities through that one important variable, the consumer price index. And even if the government is convinced it is doing “all it can” to control things, it must be seen to be doing that little bit extra. Its credibility and image has a lot to do with the price of walnuts.