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June 21, 2008 / Mridul

Rising Inflation, Nuclear Deal Bring India To The Brink Of Early Elections

The UPA government is finding it difficult to complete its full term as failure to close the nuclear deal and skyrocketing inflation are slowly eating up the Congress-led government. To seal or not to seal the nuclear deal has even created rifts in the party itself and as the leaders ponder if the party would be able to form the next government it is running out coalition partners.

According to the provisional figures the inflation touched a 13-year high of 11.05% for the week ending June 7. A survey done by a leading business news channel had expected the figure to be close to 9.40% hence the 500 point plunge in the equity markets didn’t come as a surprise. The biggest factor contributing to the double-digit inflation is the fuel price hike which alone contributed 95 basis points to the inflation rate. The Left coalition parties have since the beginning strongly opposed any fuel price hike so understandably they didn’t shy away in blasting the government policies on Friday afternoon as soon as the Reserve Bank came out with the weekly figures.

Communist Part of India (Marxist) General Secretary Prakash Karat blasted the government over the rising inflation. When a journalist asked him about the steps which should be taken to bring down the inflation he quickly replied, with harsh sarcasm, that the government should further increase the prices of petrol & diesel.

With the government’s tail between its legs already due to the rising inflation it is forced to put the nuclear deal in the freezer. The Left parties have threatened to pull out support if the government goes to the IAEA for talks regarding the proposed safeguards. A faction of the Congress wants the government to go ahead with the deal even if it means a political death for the government whereas another factions wants the party to stay put with the Left parties as they might need them in the next elections too. Meanwhile the Prime Minister is, apparently, ready to step down if the deal doesn’t go through.

What the government needs to do is to sit back, try to fine tune the monetary policy and bring down the inflation. Inflation could become the most important issue in the elections, no matter when they are held. The government also believes that a large portion of the middle class wants the deal to happen therefore it becomes all the more important to first clean up the ‘inflation mess’ to let nuclear deal take the center stage.

Currently the Congress party cannot win the elections on its own which would push the nation in a phase of uncertainty; it is also wary of the recent successes of the opposition party, the Bharatiya Janata Party. If the government somehow is able to curb the rising inflation it would be in a position to justify its policies and can then push for the nuclear deal. Doing this would give the Congress a chance to pin the Left parties by portraying them as ‘roadblocks’ in the nations development. The Left parties have had their own share of problems namely the Nandigram killings and now the Gorkhaland movement. These problems have put Left in a spot of bother earlier also and the Congress party would love to take such a leverage during the poll season.

The task to carry on with the government is becoming more & more difficult day by day; the Congress party needs to concentrate on one core issue that directly effects the common man i.e. inflation. The government has highly qualified advisers and ministers who can do well in such situations and once the inflation comes down to reasonable levels, as most analysts believe it would, the Congress party can then go for the kill over the nuclear deal issue.

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One Comment

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  1. Sushobhan Sen / Jun 21 2008 9:39 pm

    The middle class does support the nuclear deal. Until OPEC raises production and the US fixes its credit crisis, fuel prices and consequently, inflation, will not come down.

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