Govt's not-so-great macro record leaves UPA worried

NEW DELHI: When UPA constituents sit down to take a call on general elections, they will have to look at the Manmohan Singh government���s macro-economic track record.

As finance minister P Chidambaram often flags, they have reasons to feel good. Yet, there are more reasons to be worried.

While economic growth has logged historic highs in the last four years, there is no denying that it has masked a structural problem, which many analysts believe, has returned to haunt the economy in the form of spiralling inflation.

While supply-side shortfalls have definitely contributed, the slack monetary policy pursued by the Reserve Bank of India, which has fuelled a relentless rise in money supply, has contributed in no small measure.

Data shows that bulk of the increase has happened between 2005 and 2008, also the period which saw an unprecedented spurt in foreign currency inflows, RBI���s acquisition of these dollars injected rupees into the system.

At the same time, economic growth failed to keep pace with the spurt in money supply. End result: More money chasing few goods, otherwise called inflation.

It would have helped no doubt if the government had managed to come to grips with the fiscal situation. Instead, the best years of the economy, which saw record revenue accruals to the exchequer used in financing boondoggle expenditure programmes, such as the National Rural Employment Programme, that would garner the Centre more mileage.

Ideally, the government���s economy managers, who otherwise never tire preaching the virtue of fiscal reform, should have used the surplus to retire outstanding debt. Failure to curb the fisc has only meant injecting more rupees into the system���serving up a double whammy to RBI while managing inflation.

Yet again, the UPA has come up short in managing the supply-side shocks. Whether it be the case of the mismanaged wheat imports, declaring a minimum support price of paddy below that recommended by an independent body, the committee on agricultural costs and prices, or managing fertiliser stocks in the country, the government seems to have bungled.

Not only has it reversed any potential gains from the Rs 71,000 crore farm waiver loan programme, the government has exposed the economy to inflationary pressures due to supply-side shortfall.

This cannot but be worrying for UPA allies. The electorate are known to punish those who fail to tackle inflation and agrarian issues.