Deflating inflation

Inflation is where politics meets economics most often. While fiscal deficit and GDP are essentially budget-time terminologies confined to a motley crowd of prime time pundits and finance ministry officials, rising prices are a round-the-calendar debate that strikes a chord with the entire population as well as the whole political class. Again, despite the attempts of those experts to ‘jargonise’ inflation and make it just a matter of percentages, inflation breaks all such shackles to scorch your core by burning a hole through your pocket. There is no running away from it. And it’s a great leveller: It is egalitarian, secular and has no reservations!

But first to the economics before we proceed to meet with politics. And no jargon, for sure, not owing to any literary humility on my part or out of regard for the hapless reader, but because I cannot make head or tail of them myself. But what I can say with some understanding and a lot of feeling is that the hundred rupee note in my pocket is increasingly becoming less and less valuable. I might as well spend it today for it most likely will fetch me very little tomorrow. Sure, any day it would still fetch two fifty rupee notes or equivalent loose change. But such smart repartees apart, what I am driving at is that savings are no saving grace and the distant rainy day is irrelevant when you are sinking today. This surely turns the conventional economic wisdom of this country on the head as our economy has traditionally been savings-driven. But thanks to strict adherence to western prescriptions the economy is transforming into a consumption-driven one, with spending, not saving, acting as the chief spur. America’s policymakers never tire of urging its citizens to spend. So, if Uncle Sam is going to be my guru and guide, I might as well take a last look at that Rs100/- note before buying peanuts and if I am lucky, some butter too!

Of course, from an individual’s perspective such a course is fatalist and not futurist. The allusion is to reckless spending, not peanut or butter. At the macro level, propensity to spend causes Demand Inflation: It is a product of need, greed and the number of stomachs, wherein prices go up due to shortage of goods. Economists distinguish it from Cost Inflation, which is owing to rise in input costs that send prices on an upward spiral. But to the layman, both are two sides of the same useless coin. Rising prices naturally provoke a clamour for higher wages; if heeded, more money in the hands of wage-earners will stimulate more demand and therefore more inflation. For instance, the Sixth pay commission which is sought to be justified by inflation will actually propel it beyond control. Thus, inflation is both a cause and a consequence. But whether the egg or chick came first, all are sure to land in a soup!

Enough of dull economics. How does it matter if the ruling rate of inflation is 5.91% or 6.03? The nitpicking is not going to prevent my pocket being picked of the last paltry pennies in it. So, over to politics and we are now in familiar and friendly territory. Inflation has always been an inflammable political issue. Little wonder the Leftists find it more explosive than the nuclear deal, while the BJP sees it as more potent than even Rama’s arrow. That the two parties at the opposing ends of the political and ideological spectrum have found common ground, if not a common platform, on rising prices means two things: They seem certain inflation will not abate and elections will be fought over it. The Cong is understandably jittery. Its leader, who runs the party in person and the Government by proxy, has once again tried to be clever by playing split personality: According to Congmen, Sonia … ji is upset over price rise and has ‘advised the Government to take urgent steps’! As if the shadow is separate from the Saint. Thankfully, unlike an historic European compatriot of hers, she has not asked ‘Indians’ to eat cake. But maybe Sonia will recommend pizzas instead! Incidentally pizza prices have bucked inflation and are falling. And there are Desi Pizzas too, the naturalised ones like … well, let’s not digress.

The academic aloofness of economists and the practical power-play of politicians have only resulted in belittling the sufferings of the people, primarily the poor. For instance, the FM’s claim that inflation is the natural fallout of growth is most insensitive. It may be true, but the fact is that while 9% growth benefits only a few sections of the nation, the burden of inflation is spread over the entire populace, those below the poverty line included. Again, all the knee-jerk measures that have been initiated may bring in temporary relief, and even that only coincidentally, for they are no magic wands, though they may prove fatal in the long term. But since polls are in the short term, such policy jugglery may suit and serve that limited purpose. But truth be told, the forecast is that food prices are set to skyrocket world over, and India cannot be insulated from the catastrophe just because Sonia has urged MSingh to ‘look into it’ or b’cos our politicos have hit the streets.

There are a host of global triggers for inflation that do not respect the inflated egos of the pundits and politicos here. Inflation is not merely an economic or political issue but more a humanitarian one. Food shortage is an imminent calamity. The prime culprit is the increasing use of corn to produce ethanol that can replace gasoline as fuel for cars and thus cut carbon emissions. But skeptics have already sounded death knells. Reckless felling of forests and the diversion of agricultural land to ‘grow fuel’ for cars instead of food for people who drive those cars is a gross perversion of mankind’s priorities. Indeed, fast cars are set to run over fasting humans. And in our country where the viability of farming is already under a cloud, but with multitudes to be fed, a shift in land use could be disastrous.

In Zimbabwe, the inflation rate is nearing infinity and money is back to being just paper. But in India, your hundred-rupee note, whatever it is worth, is still money. I bought peanuts with mine. Why not buy a pizza with yours and thus ‘spur’ the economy? You would have also joined the elite crowd that is ‘worried’ no end over inflation!

e-mail the writer at [email protected]