Apart From The Foreign Hand

Persistent inflation in India is a clear sign of mismanaged tradeoffs both at home and globally

- TK Arun

What has macroeconomic management got to do with old filmy villain Ajit’s penchant for drowning his enemies in liquid oxygen, so that the liquid would not let them live, even as the oxygen would not let them die? Both are about seemingly impossible tradeoffs.

A spectre is haunting India, the spectre of inflation. In fact, the spectre haunts most parts of the world. And persistent inflation is a clear sign of mismanaged tradeoffs.

A large part of today’s inflation has behind it that old enemy, the foreign hand. Oil prices had been going up even before Russia invaded Ukraine, as the producers’ cartel Opec squeezed supplies, even as recovery from the pandemic crystallised demand. The war made the price of crude spike. All other energy prices soared, too.

Inflation as a geopolitical choice

Oil prices found terra firma, even if on elevated slopes, once the initial shock dissipated. But other energy prices stayed airborne, thanks to the West’s choice to prioritise punishing Russia over concerns such as inflation, aborted global recovery, food shortages and poverty.

The West has sanctioned Russian produce, but has refrained from imposing secondary sanctions of the kind used against Iran – anyone who dares deal with Iran would also face sanctions. This is a concession to Europe, rather than to Russia. Europe has to import gas and oil from Russia, at least in the short run. That ruled out secondary sanctions, and left some Russian banks outside Russia’s expulsion from the Swift financial messaging system.