Penny foolish, pound foolish!

(From archives)

Economic theories and jargon have been a nightmare since my first economics class. They have not just put a ‘young’ me to sleep at silly hours but also passed over my clueless head till this time of going to press. The only truism that makes sense to me is the one attributed to the pioneering economist Lord John Maynard Keynes: In the long run, we are all dead! But Mr JMK appears to be an optimist despite the gloomy subject he had specialised in. Survival in the ‘short term’ itself looks uncertain. You may even give the insidious terrorist the slip, but the inflationary tentacles are bound to engulf you for sure.

I will not define Inflation (I slept through that class). And I am sure you are not interested either. But then You and I need not define it to know what it is. In fact, we laymen understand it better than economic pundits because while we feel the pain and pinch for them it is just a matter of prime-time punch. Inflation is always up by point-something percentage even if tomatoes go up from Rs 15/kg to Rs 18/kg overnight which is actually a 20% rise! They probably slept through their maths classes! And invariably, their basket, called Wholesale Price Index (WPI), varies drastically in content from our real basket. Again, being a percentage, to them inflation is always a relative concept which can also ease, but to us it is an absolute reality that can never please.

Such core conceptual conflicts have always been a curse, preventing policy makers from understanding the common man’s woes. There was at least an explanation for the existence of this wall of academic punditry during the socialist days when state policy was divorced from the mainstream masses. But with the advent of liberalisation and rise of an open media, there is no justification for the mandarins of the economic ministry to insulate themselves with statistical sophistry and sundry stuff. Such ruses to hide the mismanagement of the economy will no longer work. For instance, interest rates have been hiked and fuel prices have just been spiked up. Reason: To fight inflation! Obviously, the earlier hikes have failed in that fight because the hole in our pocket is only getting bigger. Why resort to the same tool again?

Now, let me not get too ‘economical’ lest I put you to sleep through this column, that is, assuming, you are still awake. Instead, I will confine to interest and fuel, that are keeping us sleepless even at nights. I fail to understand how increasing lending rates will ease inflationary pressure on the common man. The policy logic is that dearer money will reduce its supply, less money will mean less demand and so lower prices. Let that vague, very official Vikramaditya tale hang. But here is the public logic which is no tale, rather quite instant: dearer money makes your existing borrowings costlier thereby increasing your immediate outflows. The house, vehicle, appliances bought with debt all turn pricey ‘after’ you have paid their price. And since most buy them with less or no margin, at some point the loan overshoots their worth. This happens even in case of a supposedly appreciable asset like an apartment. Clearly, rising interest rates instead of cushioning future shocks, as the RBI claims, actually makes your present miserable, thanks to your past!

And then there is retail credit or consumer credit. Today, virtually every item, from food to fuel are bought with credit cards which carry astronomical interest and which are always headed further towards the heavens. And thanks to plastic, individual and household budgets have become very elastic, with the line between essentials and luxuries vanishing. It is debatable if rising interest rates can change this consumption habit. But the point is, even in case of consumables, interest is an important component that adds to the cost. So your soup-starter-sizzler dinner last night also includes some tax masala and an interest topping @3% per month if you have paid by that Visa to doom! Indeed, in a totally micro-debt driven milieu, everyone on the supply chain of any product has his quota of interest to add to your final bill tally. With every hike, therefore, the RBI is actually making inflation gallop! Ditto with fuel price hikes which render the galloping inflation highly inflammable too. Reason why the vampire of spiralling prices always remains beyond the reach of the long arms of policy!

But four fingers point inwards, to us ‘consumers’ for we have invited such inflation upon ourselves with our wayward ways. True, with economic liberalisation disparities have widened with the rich getting richer and poor getting poorer. But middle India is equally to blame for this inequality. It is the bloated middle-class with their bulging liquidity, thanks to rising incomes and easy credit, and burgeoning consumption that have pushed the poor below deeper into the abyss even while pushing the rich above beyond their own dreams. A snooty, self-obsessed, sanctimonious, spendthrift mindset is the hallmark of this brand-manic India. Products and prices are pegged to suit their insatiable needs and tastes which in turn have contributed in no mean measure to the inflation that also hurts the poor and enriches the rich. Neither the vulgar IPL ticket rates nor society spending causes a demur in this tribe. Agitated penny pinching that still happens with the familiar streetside hawker is somehow totally absent at a multiplex or a mall where pennies and pounds vanish in a jiffy, that too with a smile. In fact, today the 50 rupee note is the new penny! And no purchase is a solo affair: it is invariably accompanied by a slew of accessories to match the first. Cribbing about inflation without any effort at curbing such infectious and conspicuous consumption does jar a bit. The inflation vampire that has climbed this Jack’s beanstalk is unlikely to come down.

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Jawahar T R