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Wise leadership in times of inflation

Last week, Parliament got down to debating inflation, particularly the back-breaking rise in the prices of food commodities. It was a serious occasion. Finance Minister P. Chidambaram and Agriculture Minister Sharad Pawar spoke for the government; both put in competent performances and pretty much answered — if not silenced — the critics.

The theme song of the Ministers was that the sudden spurt of inflation was a globally-connected phenomenon and although the government was doing its best, there were limits to what could be achieved immediately. And both sought to assure Parliament that the Indian economy was not as badly hit by the global financial turmoil as were some others. Yet the Finance Minister’s formulation was: “So we are, whether we like it or not, integrated with the global economy and impacted by global prices.”

Fair enough. And honest enough. But there is the democratic dilemma. The people of India have no way of making their displeasure known to those who, for instance, would manipulate the Chicago Board of Trade or trade in international shortage of edible oil. Nor do they have a way to punish those who define, operate, redesign or manipulate the global economy in the name of “Washington Consensus.”

The people can vent their anger and resentment only at the elected government in New Delhi. In times of hardship, the people tend to blame the rulers for their misery and deprivation. And, in democracies, the out-of-power politician instigates popular annoyance and anger against the governmental authorities. The incumbent Prime Minister or Chief Minister may find the political and media criticism unfair but there is no escape from popular backlash. In particular, political leaders and parties come to power by cultivating a constituency which, in turn, demands satisfaction of its aspirations. An honest expectation of such satisfaction becomes the basis of a leader or party’s political legitimacy.

The Congress positioned itself in 2004 as the guardian and well-wisher of the aam admi, who was allegedly being short-changed by the National Democratic Alliance and its presumed preference for the corporate interests and demands. It is natural that the UPA government’s critics and detractors should now seek to stoke the aam admi’s resentment at unfulfilled aspirations.

This dilemma is not a partisan issue but is part of the larger problem of producing a fair mix of “good” politics and sound economic management. Not many systems, democratic or non-democratic, have managed to find the ideal mix. We have today a very experienced economic administrator as Prime Minister. His critics are only too eager to point out that he lacks a “popular” mandate. Therefore, they suggest that he and his Finance Minister are too mindful of international sensitivities and not a little solicitous of the poor and deprived sections.

The central challenge is whether the Prime Minister can mobilise the ministerial talent, administrative powers, technical expertise and political energies to convince the citizens and institutions to maintain faith in the efficacy of his economic stewardship.

The crisis we face today has been in the making for some time but it has erupted in a form that could further dilute the political consensus behind the “economic reforms.” Consider this: only a few months ago, we were all deriving satisfaction and pride from Ratan Tata’s acquisition of the Jaguar; we were serenading the inclusion of three Indian tycoons in Forbes’ list of the richest; there was seemingly no sign of a rogue inflation afoot; and we were congratulating ourselves on three years of continued nine per cent growth. Then, it went sour us. From a moderate four per cent rate in January, inflation jumped to a troublesome 7.41 per cent by the end of January. Some even darkly warned of “food riots.” Every single political calculation and economic reasoning that went into the massive “loan waiver” evaporated. Has poor economics complicated an already difficult political scene?

Let us reframe the problem. How to deal with the current situation without letting the demagogue or ideologue run away with the policy ball? The demagogue’s stock in trade are slogans; he believes and demands that the government instantly use the most coercive of its powers to make the economic forces and interests fall in line. The ideologue demands unwavering faith in the market and its curative power, and warns against any intervention in the interplay of economic forces and against a ban on forward trading in essential commodities or corporate purchase of wheat.

The Finance Minister was at his equanimous best: “But the most important point, as Mr. Bimal Jalan said, is not to panic; not to politicise it; not to take panicky measures ...”

The core issue is of democratic trust. All governments, especially the democratic form, have the obligation to earn the citizen’s trust by producing good governance; or, as John Locke formulated over 300 years ago, society turns over power to its governors with the express or tacit trust that it shall be used “for their [people’s] good and preservation of their prosperity.”

The current crisis provides an ideal opportunity for Prime Minister Manmohan Singh, Mr. Chidambaram and Mr. Pawar to demonstrate that the country has the competence, skills, commitments, integrity, values and compassion to manage the economy in the best collective interest. At the very crux, the challenge is to demonstrate that a democratic polity can strike the right and fair balance between the consumer and the farmer, between corporate initiative and social responsibility, between need for industrialisation and the imperative of the agricultural sector, etc.

Above all, there is need to prove that the market can be made to work in the public interest, without hurting (reasonable) private profit. For instance, the Finance Minister talked of the looming danger of cartelisation in steel and cement industries. Can a democratic government take a wholesome policy approach? Unfortunately, the country has witnessed an open spat between the Finance and Commerce Ministers. Equally unfortunately, public officials are seen as working at the behest of this or that corporate lobby.

The great democratic tragedy of the last 15 years has been that a new policy regime of liberalisation was imposed on the country without any debate, and even after all these years, the constituency for reforms has remained confined to the chambers of commerce and pink press editors. After 15 years, the circle is complete; no political party can pretend that it rejects the liberalisation regime totally. No political leader has the credibility to suggest that he has a magic solution to avoid the kind of economic difficulty we find ourselves in today.

The challenge, then, is to use the democratic discontent and displeasure to disabuse the corporate sector of its new appetite for super-greed and mega-profits; at the same time, the curative power of democratic opinion and scrutiny must be used to discipline the wayward administrative and political class, especially at the State level.

Take, for instance, the procurement problem. As the Agriculture Minister pointed out, some of the State governments were not cooperative enough: “My earnest request to all the Chief Ministers and all those who are looking after the States is this: the whole country is facing this problem today; the whole global community is facing this problem today ... Next year is election year when we can settle our differences. But when the whole country is facing price rise, it is the duty of the States to try to contribute to the national kitty.”

If not managed in a politically mature manner, the economic situation could produce a larger crisis of the kind the polity faced in the wake of the 1973-1974 oil-centric aggravation; then, the political system was yet to discover the usefulness of a protocol of cooperation and the incumbent political leadership was unable to deal with the demand overload. We have not entirely given up those old habits of demagoguery and irresponsibility.

Today, we have a much-weakened Centre, a runaway free media, precarious coalition equations, an arrogant corporate sector, rampantly partisan parties, and an angry citizenry; these do not provide the best context for prudent economic management. Dr. Singh’s lot is to prove, once again, his mettle and to make a case for a balance between wise economics and sensitive governance.

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