Low prices give India's rulers an election high
By Hari Ramachandran
NEW DELHI (Reuters): India's rulers are riding a wave of election good fortunes this year, helped by heavy commodity imports and full granaries that are keeping a lid on ballot- sensitive prices.
The forces of nature can take credit for bumper crops, but Prime Minister Atal Behari Vajpayee's Bharatiya Janata Party (BJP) has pursued policies designed to help make sure inflation does not get out of hand.
The BJP, which looks set to return at the head of a new coalition after the ongoing elections, learnt the perils of inflation the hard way in 1998, just a few months into its short tenure.
The price of onions, a staple of the Indian diet, skyrocketed before provincial elections. The BJP lost power in two key states and was hammered by the opposition Congress party in a third.
But opinion polls predict victory for the BJP-led National Democratic Alliance in the general elections now underway. Voting began recently and continues in stages through early October.
Analysts say the electoral effects of a military gain in Kashmir, where India fought off infiltrators this year, are being compounded by economic benefits aimed at poor voters in a nation where a third of nearly one billion people do not enjoy basic food and shelter.
"Mentally, this fragile coalition was always ready for another round of elections and that meant that the consumer had to be kept happy with sufficient supplies and reasonable prices," said G. Chandrasekhar, Commodities Editor of Business Line newspaper.
Prime Minister Vajpayee's coalition liberalized sugar imports despite a bumper domestic harvest of sugarcane, boosted government wheat stocks, and resisted demands to raise edible oil import duties, with an eye firmly on elections.
The BJP -- whose coalition fell in April after an ally withdrew key support but which has stayed on running a caretaker government pending the elections -- also sustained wheat imports by private traders.
"It is possibly a case of once bitten twice shy...over US$30 billion (in) foreign exchange reserves provided a cushion for the government to pursue a liberal import policy," Chandrasekhar said.
India's grains output in 1998/1999 (July-June) totaled 203.5 million tonnes, the country's highest so far, up sharply from 192.4 million tonnes in 1997/1998.
Inflation-adjusted farm sector growth touched 7.6 percent in fiscal 1998/1999 (April-March), a huge reversal from the previous year's negative one percent which resulted from a fall in output.
Inflation and food prices, a sensitive item in elections for the past five decades, have become a non-issue in the current elections.
"Given huge stocks, sugar prices under control and edible oil imports flooding the market, housewives are happy," said Ashok Gulati, professor at the Institute of Economic Growth.
The year-on-year wholesale-price based benchmark inflation rate was 1.67 percent in the week ended Aug. 21, compared with the year-ago rate of 8.39 percent. On July 24, inflation had dipped to 1.19 percent, marking a 20-year low.
An emergent industrial recovery has ridden on the back of low farm prices which have driven consumer demand. Year-on-year industrial growth in the April-June quarter was 5.6 percent, up from 4.5 percent in the year-ago period.
But the low-inflation honeymoon may not last long.
Congress leader and former Finance Minister Manmohan Singh said last Thursday he could see inflation stoked by a rise in domestic oil prices in line with the hardening world trend.