The fever returns.

Wholesale Price Index has jumped from 4.68% in February to 5.7% in March while the Consumer Price Index has increased from 8.1% in February to 8.31% in March. Meanwhile Index of Industrial Production fell by 1.9% in February while exports fell by 3.15% in March to $29.6 billion. The fall in the value of the rupee should increase exports by making our goods cheaper abroad but inflation cancels that out by increasing prices. Export of gems and jewellery fell by 22.1%. You need gold to make jewellery but the government has severely reduced import of gold to control the Current Account Deficit. Gold imports fell by 17.3% in March and by 40% in the last financial year. The government is hoping to keep CAD to less than $40 billion which would be 2% of GDP. In the last fiscal CAD had soared to 4.8% of GDP at $87.8 billion, bringing with it a threat of downgrade of India's credit rating to junk status. In blind panic the Congress increased the excise duty on gold from 2% to 10% and severely curtailed its import. Fast rising prices forced people to cut expenditure, resulting in a fall of demand, and the Reserve Bank to raise interest rates, which increased borrowing costs, resulting in a fall in investments. The government was forced to reduce expenditure to bring down the fiscal deficit but the Congress could not and would not reduce spending on social programs for fear of losing votes so it cut investment in infrastructure. Thus, productive spending was cut but useless waste continued unchecked, further reducing growth. In fact, the handouts to the poor ended up harming the poor instead of helping them as rising prices took an ever bigger chunk out of their earnings, forcing them to return to their villages to eke out a living from land. The credit rating agency S&P said," If slow growth continues revenue growth could also decelerate. And as developed economies' growth regain traction, both interest rates and commodity prices are likely to rebound. The resulting increases on interest payments ( a major government expenditure for the heavily indebted Indian government ) and subsidies could further squeeze the country's already-limited budgetary space." Which means that increased borrowing to finance handouts will increase interest costs which will reduce the ability of the government to spend. This will restrict growth and reduce tax collections. As rich countries recover so the price of commodities will rise, adding to inflation. India is locked in a vicious cycle. Can we get out?