In a sharp attack on the Manmohan Singh government, the Bharatiya Janata Party said “policy paralysis” had pushed the country into stagflation — a combination of inflation and deceleration in economic growth.
Senior party leader and former Finance Minister Yashwant Sinha told journalists here on Tuesday that the government's inaction on the fiscal front was baffling and raised questions on the possibility of a nexus between sections of the establishment and the beneficiaries of inflation.
Mr. Sinha made two specific points to buttress his argument — the government's reluctance to release food grains rotting in the godowns so as to ease food inflation and a puzzling inaction to stabilise the rupee.
“Food grains rotting”
The BJP leader said ordinary people were reeling under the burden of food inflation and the government, which was sitting over huge stocks of food grains, ought to have eased the situation by releasing these stocks. “The food grains are rotting and yet the government is not doing anything to bring down food inflation.”
Mr. Sinha said the sharp depreciation of the rupee vis-à-vis the dollar was inexplicable considering that the country had foreign reserves worth $350 billion. He maintained that the Reserve Bank of India could have averted the rupee's free fall by intervening.
The BJP leader said Finance Minister Pranab Mukherjee had recently sought his views ahead of the RBI policy review for the third quarter of the fiscal and he had asked the Minister to request the RBI not to hike the interest rates any further.
“I have no idea if Mr. Mukherjee has conveyed my views to the RBI. The latest interest rate hike by the RBI, the thirteenth since March 2010, would hit the middle-class in a big way. On account of Equated Monthly Instalments alone they would have to shell out Rs.6,000 crore more,” Mr. Sinha said.
Asked why he thought the government was not releasing additional food grains, Mr. Sinha said the only possible explanation was that some sections within the government were in cahoots with the traders, the biggest beneficiaries.
Mr. Sinha said the government had divested itself of the responsibility of fiscal management and left it entirely to the RBI.
He maintained that the RBI, which had control over the monetary policy, could not be expected to address the fiscal concerns.
Separately, in a letter to the Prime Minister, BJP president Nitin Gadkari painted a grim picture of the economy and said that if urgent policy initiatives were not taken, there could be adverse consequences.
‘Hindu rate of growth'
“The Financial Times viewed the Indian economy as moving back to the ‘Hindu rate of growth.' Though the terminology may not be acceptable, the hard truth is that India is back to its bad old ways. Some commentators diagnose the Indian economy as affected by stagflation,” Mr. Gadkari said.
He said 2011-12 may see the biggest trade deficit yet in India's history and would be importing more inflation through the deficit, thanks to rupee's depreciation.