Rahul-flation is back: It's the price we pay for dynasty

With consumer price inflation hitting 10 percent once again in October 2013, it is crystal clear that UPA-2 has imposed heavy costs on the Indian citizen. A government that claims dedication to the welfare of the aam aadmi has managed to break his back by imposing the worst form of taxation on the poor: high and recurring inflation.

To be sure, every economy faces inflation some time or the other depending on economic cycle conditions. However what India is currently facing is not the normal kind of inflation that comes and goes in response to transient supply and demand factors, but a more insidious kind injected by excessive populism unrelated to normal political spending alone. I have called this persistent inflation Rahul-flation for the simple reason that it is politically motivated by the need to bring Rahul Gandhi to power, even if takes a decade or more.

 Rahul-flation is back: Its the price we pay for dynasty


Rahul-flation and Sonianomics go far beyond the normal political need to pander to the electorate just ahead of an election. Rahul-flation is structural and embedded deep in the economy for it has been building up and escalating for nearly 10 years now. The Indian economy has been sinking for the last three years because of sustained injuries inflicted on it for nearly a decade by dynastic considerations.

Rahul-flation has grown from a minor ailment to a deadly economic contagion and the Indian public has paid, and will continue to pay, a huge cost to keep the gaddi reserved for Rahul.

Rahul-flation is a scandal because the stats show that consumer inflation during UPA-1 and UPA-2 has been rising at an average of 2.5 percentage points above the NDA's average during 1998-2004. If we take the NDA's inflation average of 5.41 percent as somewhere near India's natural rate of inflation, UPA's rate is 50 percent higher - at 7.96 percent, and rising. The additional 2.5 percent inflation is Rahul's contribution to making the aam aadmi's life miserable by inducing inflation.

The main defence of the UPA has always been that it has taken India up a higher growth path, and statistically this is true. Between UPA-1 and UPA-2, the average GDP growth has been close to 8 percent (assuming this year ends up with at least 5 percent, which is doubtful). NDA's tenure saw 6 percent. There is a near two percent gap between NDA and UPA growth rates overall. However, the gap narrows to less than 0.8 percent if one compares NDA's six years (1998-2004) with UPA-2's performance - 6 percent for NDA versus 6.8 percent for UPA.

However, UPA's strongest supporters - from the National Advisory Council to intellectuals like Amartya Sen - will tell you that it is the quality of the growth that matters, and not the actual growth number. This argument has been repeatedly used to suggest that the Gujarat growth story is non-inclusive and of poor quality.

This is not true, for a rising tide lifts all boats, and higher growth has indeed improved social indicators in Gujarat, but that's another story. We are on the point of the quality of growth - and here the NDA has done better both on jobs and inflation, the two things that matter most to the aam aadmi.

Against 6 percent growth, the NDA delivered 60-million-plus jobs, and against 8 percent average growth, the UPA delivered all of 2 million jobs in UPA-1, and 13 million in 2011-12. The latter figure turns out to be a fudge (read here).

But the UPA's real outperformance is in taxing the poor through high inflation. In its first nine years (2004-13), average consumer price inflation was 7.96 percent, and 2013-14 will surely take it above 8 percent, if current trends are any indication. There has not been a single year in UPA-2 when consumer inflation has been below 8.4 percent, and the average till 2012-13 is above 10 percent. Nobody is expecting a miracle this year, with election spending, a huge fiscal deficit, a falling rupee and diesel price hikes still to be passed through looming large.

Rahul-flation is not going away anytime soon, and the reason is the sheer amount of costs loaded onto the economy by the need to keep the dynasty in power. These are the costs imposed on India by the Nehru-Gandhi dynasty over the last 10 years - and these costs exclude the long-term damage done by destroying or distorting the markets for land, labour and capital, and the growth blockages created by policy paralysis - again partially induced by Rahul-baba's obsession with anti-development tribal lobbies. ("I am your solider in Delhi," Rahul told Odisha's tribals three years, triggering off the phenomenon of stalled projects everywhere). The costs will keep adding up at least for another two or three years into the next government.

Here the costs imposed by dynasty - and why they are pushing up inflation.

#1: Rs 7,60,000 crore is the estimated oil subsidy paid (or payable) by taxpayers and public sector companies between 2004 and 2014. No previous government has ever subsidised oil to such a huge extent for such a long time. This has caused a huge fiscal deficit, leading to high inflation. This is entirely due to political mismanagement directly attributable to the Gandhi family.

#2: Rs 1,50,000 crore lost in scams: Between 2G and Coalgate, I estimate the Congress's contribution to exchequer losses at this figure. The CAG's estimate of the coal block losses were Rs 1,86,000 crore. Assuming the states were responsible for even half the loss, the Congress contribution would be Rs 93,000 crore, since the coal ministry was directly under PM Manmohan Singh. As for 2G, the lowest loss estimate by the CAG was Rs 57,666 crore. So even without taking the hyped-up figure of Rs 1,76,000 crore into account, the loss caused by the Gandhi family in allowing A Raja to run his own scam would be at least this amount. Together, the Coalgate and 2G losses attributable to the Gandhi family's political misadventures would be Rs 1,50,000 crore.

#3: Rs 200,000 crore crore spent on NREGA: Between 2006 and 2014, nearly Rs 200,000 crore would have been spent under the make-work NREGA scheme. The reason why this figure is entirely attributable to the Gandhi dynasty is partly self-acknowledged. Rahul Gandhi said his was the hand behind NREGA. But there is also a more serious reason. NREGA was needed primarily because the economy under UPA was not generating jobs - despite high growth. Jobless growth was UPA's gift to the poor, and the NREGA spends would probably not have been needed if the economy was creating at least as many jobs as it was under NDA. Jobless growth and high NREGA spends added fuel to the inflation fire.

#4: Rs 72,000 crore farm loan waiver in 2008: This pre-election bonanza for farmers was the direct result of pressure from Sonia Gandhi on finance minister P Chidambaram.

#5: Rs 90,000 crore excess economic stimulus post Lehman. This was Pranab Mukherjee's goof-up, but neither Manmohan Singh nor Sonia Gandhi stopped him if they thought this was wrong. The total stimulus cost was Rs 1,80,000 crore in written off excise and other concessions to business. It created an artificial growth bubble in 2009-11, leading to economic collapse after that, not to speak of high inflation. If we assume that half the stimulus was unnecessary, the money wasted can be put at Rs 90,000 crore.

Under just five heads, the costs imposed on the economy by the dynasty or its nominees in government add up to more than Rs 12,72,000 crore. That's more than the entire revenue receipts budgeted by P Chidambaram in the 2013-14 budget. (For my 2011 estimate of the cost of dynasty, read here).

The cost of keeping the Gandhi family in power is truly staggering. These are costs are what are keeping Rahul-flation in a perpetual upward trajectory.

Updated Date: Dec 21, 2014 01:02:27 IST