The mini-budget just brought by the government into the National Assembly cannot be blamed for the current inflation rate as it has not yet been passed. It will merely give a fillip to inflation. Inflation is never good news, but this is particularly bad news, because inflation is already going up. It reached 12.3 percent year on year in December, up from 11.5 percent in November, and 9.2 percent in October. It was on top of this increase, which is the highest for 2021 that the min-budget will come, and the petrol price increase, of about Rs 4 per litre, has come. While the mini-budget awaits passage, the fuel price increase has happened. While most of their measures in the mini-budget relate to finished goods and their competitive advantage, the fuel price affects the cost of all goods that have to be transported, which means everything. The prices of agricultural products, which means edible goods, will also go up with the cost of diesel, which is fuel for agricultural machinery. These all mean that the cost of living will go up, not just the cost of computers, which the government so mockingly mentioned to justify the mini-budget it has introduced.
The government has to face the electorate in Punjab, where it is trying to avoid the local body polls due there in March. It has already done badly in KP, where it had deeper roots, having won two general elections and the previous LB poll, on the trot. In Punjab, it only has the 2018 general election to its credit. To go into the election with its central government presiding over huge price rises is not going to be good for the PTI candidates. When polls were partyless, it was possible for party stalwarts to disown the government if it suited them, but that is no longer possible.
With the interest rate already at 11.25 percent, the State Bank’s Monetary Policy Committee is preparing to hike it further, on what it coyly terms ‘inflation fears’. The last increase in the policy rate did not halt inflation, so the State Bank will be motivated by either optimism or the lack of anything else to do. The problem is more deep-rooted than the interest rate, or even the inflation rate; the economy is being mismanaged.
