War On Inflation

Rising prices are the latest threat to india’s economic growth. With RBI increasing rates, investment climate subdued and ukraine war in full swing, government finds it hard to check inflation without hurting economic growth.

- Ashutosh Kumar

ON FEBRUARY 7 this year, Prime Minister Narendra Modi said inflation is an issue connected to the common man and his government has tried to handle it with utmost “caution” and “sensitivity.” The context was high-decibel protests by Indian National Congress and other opposition parties over soaring prices of fuels, fruit/vegetables and other daily-use goods.

Tearing into opposition and specifically hitting out at Congress, he said during his reply to motion of thanks on President’s address in Lok Sabha that the country was reeling under double-digit inflation during most of last five years of Congress rule with party leaders conceding they won’t be able to handle the situation. Emphasising that consumer inflation was 5.2% in FY2022 till then, despite the pandemic, while food inflation was under 3%, he said inflation control is “primary objective” of government’s economic policy.

Even as he was talking about his government’s record on tackling inflation, markets globally were planning a surprise. Prices had already started rising after October 2021 as a result of expansion of central bank balance sheets and government doles to lower the impact of Covid-19 on businesses and common man. The liquidity found its way to commodity markets and started pushing up prices. Russia-Ukraine war worsened the crisis by increasing energy rates and disrupting supply chains that were already under stress due to the pandemic. The result: Inflation is at decades-high in all major economies like U.S., Europe and Australia and has mutated into a full-fledged threat to global economic recovery by forcing central banks to increase rates and roll back liquidity at a faster pace than anticipated earlier.