Monday, January 17, 2011

Back to inflation. The wholesale price index, WPI has gone up to 8.43% in December and the Reserve Bank, RBI is expected to hike interest rates on 25 January. While China and South Korea are exercised over inflation rates of 3-4% the RBI's target is 5-5.5% in India. So, why is the RBI not taking drastic action to control inflation which is so much higher than its modest target? The reason is that inflation can only be controlled by reducing growth rate which the Congress led government will not allow. Fall in growth rate will leave the Congress with nothing to brag about even as it is seen to be a cesspit of corruption and, more importantly, lower growth means less in tax collections which a desperate Congress cannot afford. Having won the last elections by bribing useless parasitic civil servants and forgiving farmers' loans which left the government bankrupt the Congress needs money for some important state elections coming up in the next two years. Apparently the next budget is going to increase supply of cheap food grains to the aam aadmi from Rs 567 billion to Rs 920 billion. There will be similar rises in expenditure on education. Needless to say a major portion of this money will be creamed off which will pay for election expenses and the Congress will be able to crow about how much it is doing for the aam aadmi. The budget will also increase taxes by bringing lab investigations and tutorials under service tax which can then be blamed on the greedy private sector. First collect money through high taxes creating inflation and then use the same money for charity making the naked aam aadmi so grateful. This is how the Congress has enslaved India since independence. Foolproof.

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