It is the inflation, stupid.

Our Finance Ministry was angry and dismissive when the IMF singled out inflation as the most important adverse factor for growth in a report on 20 February. " Given elevated and persistent inflation, the analysis suggests that the RBI may need to raise rates decisively to tackle inflation durably. As inflation is mostly backward looking, monetary policy has to maintain a right stance for a prolonged period of time," the report said. This government, including the Most Famous Economist, has been insisting that growth must be attained at any cost and monetary tightening would have no effect because the main cause of inflation is the rise in food prices which is independent of interest rates. Low interest rates would help the construction industry, increasing employment of low wage labor and economic growth would increase tax collections which would enable the Congress to increase handouts, both of which would please the vote bank. Now economists working at the IMF have justified their report in an article. They say that the Consumer Price Index, as favored by the new RBI Governor, Raghuram Rajan, should be the measure of inflation and not the Wholesale Price Index that the Congress prefers. Anyway, the MNREGA scheme is linked to the CPI and pushes up wage cost by acting as a floor, as is the Dearness Allowance paid to useless civil servants. IMF research suggests food price inflation in emerging economies is more persistent than in developed economies because households spend a much greater proportion of income on food and this spreads to the non-food economy. They call this second-round effects and it is this that needs to be controlled with high interest rates. A weak rupee should, by making our goods cheaper, encourage exports but high inflation negates that by making cost of production very high so the advantage is lost. India will not achieve $325 billion worth of exports this year, what China exports in a month. So what is the response of the Congress? It has increased the handouts paid under the MNREGA scheme to rural labor for doing nothing. This will take effect on 1 April, at the start of the new financial year. Yet, the Election Commission has announced general elections will start on 7 April which will surely bring in a new government. Is the Congress trying to destroy the economy so that the new government cannot function? No sharam, no izzat.