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Persistently high inflation led the RBI to tighten monetary policy by raising the key rates 13 times since March, 2010, resulting in higher interest rates, lower sales of homes and cars and costlier capital for industry. High food inflation hits the poor the most and extracts a political price. The Centre came in the line of fire as states showed disinterest. Hoarding, cartels of middlemen and demand-supply glitches remained untouched. Due to low agricultural productivity the country fails to produce enough to meet the demands of a growing population with rising incomes. With greater awareness about nutrition, more people now consume a protein-rich diet, which pushes up prices of eggs, meat and chicken. Oil was on the boil and fuelled the inflationary fire. The depreciating rupee raised the cost of importing oil apart from pulses and edible oil. The government has enough stocks of cereals, which rot at places, but are not released in the open market to cool prices. As the mid-year analysis on the economy tabled in Parliament on December 9 revealed, the government finances were in tatters. Lower growth meant lower revenue, but the government spending on social welfare is high and will escalate further once the right to food Bill becomes a law. By Finance Minister Pranab Mukherjee’s own admission, the fertiliser, food and oil subsidy Bill is set to exceed the budgetary targets by Rs 1,00,000 crore. Exports appeared robust, but the government figures turned out to be inflated by $9 billion. Fiscal deficit is set to cross the budgetary figure of 4.6 per cent of the GDP to 5.7 per cent, which is one reason why foreign institutional investors are fleeing the country’s stock markets. As the business climate worsened and "policy paralysis" prevailed, top Indian firms chose to invest abroad. Fresh investment, both domestic and foreign, slowed and imports picked up, and the rupee slid to a record low of 54.30 against the dollar on December 16. To control prices and cut food waste, build a reliable supply chain and strengthen infrastructure, the government opened up multi-brand retail to 51 per cent foreign direct investment. But a united Opposition, backed by some UPA allies, crippled Parliament’s functioning, forcing the government to retreat. With a noisy Opposition disrupting Parliament, legislative work suffered. The Bills on food security, land acquisition, the direct taxes code, pension fund, insurance and aviation have got delayed. The FDI fiasco has left the reformers less enthusiastic about pushing the second-generation reforms. The year-end, however, saw a return of some hope: Food inflation has started easing. The rupee may recover.
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