Still to recover fully from the shock of the electoral reverse in Karnataka, the Congress Party is having to fight on several fronts in order to retain its primacy as the country's leading political force. With the approaching parliamentary elections in less than a year the Congress, including its allies in the UPA, are fighting for political space, mainly at its cost. Though shaken, it is not showing any signs of having learnt the appropriate lesson from the recent electoral reverses in order to make it a fighting-fit, well-oiled machine to face future challenges with confidence. A pointless debate has started as to whether the Congress should be a mass or a cadre-based party (like the BJP and the Communist parties), though the latter alternative has been rejected by its leaders many times in the past. In any case, this is not the time to consider structural reforms of the Congress--having lost four precious years since the last election--when it is already in the midst of a major battle for survival.
The adverse developments in the world economic scene, caused primarily by the unprecedented hike in crude oil prices touching $140 a barrel, are having unwelcome repercussions on the Indian economy as well, with the increase in petroleum prices and world food shortages the voters are being put to great inconvenience. The Government erred in not taking the people fully into confidence since last year on the deteriorating global economic environment and its unavoidable impact on India. The people would have been better prepared to face the situation and small increases in petroleum product and LPG prices from time to time would have been better absorbed, though the cumulative impact would have been as bad. By not crafting a proper political strategy, the Congress Party has led itself into a situation of isolation, with its allies, including the Left (which has always disagreed with it) denouncing it in public. To provoke people on the issue of price rise and to project themselves as their guardians is the easiest strategy for them to garner votes.
However, some observers feel that it may have been a calculated move to draw out the BJP and the Left Front into a debate on economic policies, especially giving tax benefits to the middle class, whose income has gone up substantially in the past four years. Similar is the case with farmers, who have benefited much from the substantial increase in the support prices of farm produce, as well as, rural unemployed generally, and the revolutionary National Rural Employment Guarantee Scheme. The Congress would like to draw home the point that while inflation is being tamed, income of every section of the society has risen substantially, the per capita income during the previous financial year rose to Rs. 33,000.
The government more than doubled tax benefits for middle class by raising the tax exemption limit from Rs. 60,000 during the Vajpayee - NDA regime to Rs. 150,000 this year, cutting tax rates under various heads, increasing the tax-GDP ratio, reviving the long-starved farm sector by waiving debts and giving a 30 to 40 per cent hike in support prices of agricultural commodities -- a factor overlooked by the BJP during its six-year rule at the Centre, when India was supposed to be "shining" on all fronts. An opportunity has thus been provided to capitalize on these achievements and exposing the relative non-performance of the BJP led NDA Government on the economic front as a whole.
The BJP, with its new Prime Ministerial candidate, is highlighting the fact that inflation has crossed 11.05 per cent and has called the oil prices hike as "economic terrorism" without realizing that during the NDA rule inflation was 7.5 to 8 percent when the price of crude oil was only $ 40 to $ 50 a barrel. As Finance Minister P. Chidambaram has pointed out, the BJP was merely politicizing the issue and that the Government had taken quick fiscal, monetary and administrative measures to contain inflation and was willing to take more steps, when called for. The Reserve Bank of India was quite confident of battling out the alarming situation. It explains, when demand for a rise in paddy support prices from Rs. 645 a quintal to Rs. 1000 was conceded, the retail prices of these commodities were also bound to go up. The substantial increase in individual incomes in the past four years should provide the cushion against price rise, which is a world phenomenon.
The situation would soon come under control, with the Government having procured over 21 million tonnes of wheat for the national buffer stock, and no need for food imports this year, the situation would moderate. An expected bountiful monsoon, which has started all over the country earlier than normal, has revived hopes of the Congress-led UPA and bolstered its chances in the next general election. A shrewed move by UPA Chairperson Sonia Gandhi, advising her party Chief Minister to take the sting out of the fuel price hike by reducing state sales tax on petrol, diesel and LPG has, to an extent, assuaged the public feelings. The Congress ruled states have reacted immediately by reducing the tax and making fuel cheaper. Delhi's Chief Minister Sheila Dikshit absorbed as much as Rs. 40 of the Rs. 50 increase in the LPG eyeliner price, thus giving relief to the consumer.
The ball has been put in the BJP's court because the states ruled by it have been stingy in granting relief to the consumer even while offering very little, they want the Centre to reimburse their sales tax losses, for reasons difficult to explain. The whole concept of sharing the burden caused by external factors is being rejected due to narrow political gains. The duty tweaks will provide relief to the tune of Rs. 22,600 crore to the oil marketing companies which were on the verge of bankruptcy. Oil producers, such as, ONGC and GAIL will share Rs. 45,000 crore burdens of their losses by way of discounts and the government will periodically issue bonds to the oil marketing companies to balance their losses. Losses suffered by the three state-run companies rose form Rs. 16.34 a litre to Rs. 21.43 for petrol, Rs. 23.47 to Rs. 31.58 on diesel, Rs. 28.72 to Rs. 3598 on kerosene and Rs. 305.90 to Rs. 352.90 per cooking gas cylinder. Since fuels have a heavy weightage in the price index, the new increase will put at least 28 to 30 basic points of pressure directly and another 10 to 15 per cent indirectly, by way of higher freight, costs of raw materials and costlier production, on the inflation figure. This means that an inflation rate of 9 to 10 per cent in the coming weeks, unless the Government takes some parallel measures to check increase in the prices of essential commodities.
There are some in the Congress Party who are still in two minds--whether to take bold measures to implement policies without caring for the carping communist parties, or await the results of the next round of election in BJP ruled states. The former courses would revive the UPA's image in its middle constituency being wooed by the BJP, which had faltered on most of the promises it had made. But the Government cannot afford to wait any longer because the parliamentary elections are not far away and which will decide its future. It must act and act now to correct the externally-influenced distortions which have crept into the economy in order to sustain at least an 8.5 to 9 per cent growth rate this year and implement various schemes of liberalization and development on a wide front, including infrastructure, industrial investment and focused attention on the agricultural front.
Side by side with industrialization, employment generation in small medium, and high tech industries, farming and services must be accelerated. The agricultural sector still provides the largest employment and its prosperity gets reflected in industrialization with an increase in purchasing power and consumer demand. Weakening of the rupee is expected to further stimulate growth of exports and software industry, as well as, the services sector which, after two years of slow growth is showing healthy signs of recovery.
The economic factor has, no doubt, created problems for the government which is having a lot of explaining to do vindicate its position and the measures it has taken to control the situation. But, at the organizational level the Congress still remains weak, the reasons for which are clear to all, except a few self-possessed party leaders, caught by indecision and inertia. It is a sad commentary on the state of affairs if almost every year the party has to set up a committee to inquire into the causes of its weaknesses and electoral reverses and then shelve their reports. The party has to change its methods and strategy. Otherwise, it will be too late.