The Congress has killed the goose.

With growth stagnating and inflation very high India is in stagflation. Even though the fall in the value of the rupee has made exports cheaper manufacturing activity is still tepid. PMI for manufacturing in December was 50.7 from 51.3 in November. Any number above 50 means growth so it is just about in positive territory. Not so the services PMI which came in at 46.7 in December compared to 47.2 in November. New orders index fell to 47.3 in December from 48.2 in November. For a $16 trillion economy like the US a 3% growth is huge because it amounts to about $500 billion but for a $1.9 trillion economy like that of India a growth of 5%, although higher in percentage terms, amounts to only around $100 billion. Thus while India will become a $2 trillion economy the US will jump to $16.5 trillion this year and, given the same rate of growth, to $17 trillion next year. The US has a population of about 300 million with 7% unemployment while we have humongous population of 1.2 billion with such poverty that the Food Security Bill aims to distribute cheap food grains to around 800 million people. In order to encourage high grain production the government buys from farmers at an artificially raised price, called the Minimum Support Price, instead of at the market price. This, plus other social schemes, need vast sums of money that can only come through taxes but with growth stagnating tax collections are below that predicted in the budget, increasing fiscal deficit. High inflation decreases consumer spending and reduces tax collections. Inflation can be controlled through monetary tightening but high interest rates, along with severe reduction in non-plan expenditure by the government, reduces investment and affects growth. Another way would be to try and increase the value of the rupee by facilitating inflows of foreign currencies by offering very high interest, which the RBI has been doing, but that would reduce exports and increase the Current Account Deficit. With elections in April the Congress is desperate for more money to bribe voters and would happily increase taxes but taxes are already so high that raising them further will only add to inflation and reduce consumer demand. It is the old story of the goose that laid golden eggs. The Congress has succeeded in killing it.