Opinion Inflation edges out growth

Sixteen. THAT is the number of times the Prime Minister mentioned the term “growth” at last week’s Full Planning Commission meeting. The term “inflation”,though,failed to find a mention even once in Manmohan Singh’s speech. Contrast this with the Reserve Bank of India’s mid-quarter policy review statement,which was peppered with “inflation” at 23 different places,clearly accentuating the stark difference in the concern that the RBI and government have shown on the growth versus inflation dilemma.

The government’s obsession with growth is palpable,considering that it has been castigated from all corners for policy inaction,corruption and living beyond its means,all of which have brought business sentiment and growth crashing to the ground. But inflation clearly has been a bigger problem. The WPI inflation in the five years to 2012 has averaged around 7 per cent. In fact,from November-2009,inflation averaged at 8.8 per cent,nearly four percentage points higher than the RBI’s targeted inflation ceiling of around 5 per cent. The RBI,clearly,has enough grounds to stay focused on inflation,even at the risk of growth being compromised,despite the growing clamour for a rate cut from the government and the industry.

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This comes from the central bank’s firm belief that inflation is a bigger worry than economic growth and that the onus for restoring the growth momentum should be with the government,which has to rein in fiscal profligacy and take steps to ease bottlenecks in key sectors such as infrastructure and agriculture. The move to open up FDI in retail and partially plug the fuel subsidy leakages are steps in the right direction,but simply not enough. At a time when Mamata Banerjee has decided to pull the rug and announce a withdrawal of support,there are question marks galore on the fate of the UPA’s renewed reforms drive.

But undeniably,for the central bank,the continuing worry remains inflation. Already,it’s two-and-a-half years since the RBI has been working at blunting runaway inflation,having started way back in March 2010 when it hiked the repo in staccato steps from 4.5 per cent to 8.75 per cent. Even as inflation has failed to respond,GDP growth dropped steadily from 9 per cent to 5.3 per cent. No wonder then that the RBI has stuck to its guns now and has refused to budge on the demand for a cut in policy rates,the government’s new-found enthusiasm for reforms notwithstanding.

anil.s@expressindia.com