India:11.05% Inflation Puts Nuclear Deal to Back Burner

It’s a bad news for the ruling UPA led by Congress at   the center. Sandwiched between failures to materialize Indo-US nuclear deal on one hand and high inflation on the other, the priorities for the government has now shifted to the later i.e. containing the inflation. However it is tough nut to crack when a phase of state and the parliamentary elections are due in less than a year.

The 11.05% is not even a peanut compared to Zimbabwe’s inflation of 1100000%. But then it is India where even double-digit inflations were a thing of past and nobody ever thought of inflation going to the mountains from the sea level of 3% in October’07. The last time the inflation was higher at 11.11% was in the first week of May’1995.

Not withstanding rise in crude prices, it is the central government to blame for this inflationary jump, which was on anvil given the apathy to allow things to drift over a long period. For example commodity and food prices were allowed to rise continuously since last two years without any corrective measures from the government. Rather, by allowing futuristic trading in food and commodity, the government gave an impetus to further rise in prices.

The inflation has taken its toll on the stock market too. In October’07, when the inflation was a mere 3%, and now, the stock market has taken a battering loosing 26.5% in BSE Sensex. With the economy likely to lose growth by 1% down from 9.5% in the past two years to 8.5% this year, the panic button is pressed for all concerned from the Prime Minister to Finance Minister and Reserve Bank of India.

The leftists, led by the communists, the biggest allies of UPA government, are out, even to pull off support to the central government in the event the nuclear deal is pressed further. Manmohan Singh has now bigger challenges to meet such as containing the inflation and big-ticket announcements for ‘aam-admi’ (the common man). The climb down from nuclear deal will no more be a loss of face for him as the survival of the Government is also in the national interests.