How BJP and Congress square off in the great inflation debate

“Global economy is slowing due to tight financial conditions and global trade is contracting. Global financial landscape is rapidly changing, potential stress may emerge from unanticipated corners.” – RBI Governor Shaktikanta Das. To me, these aforesaid remarks by the RBI chief clearly showcase that globally. Central banks could continue with tight monetary policies for longer than expected. That US 10-year-bond yields and global crude oil prices are hardening and moving northward. It is yet another sign of unfolding global challenges. However, in the midst of global uncertainty, India stands tall as an oasis of macroeconomic stability with the medium- and long-term trajectory of inflation headed southward. Reining in fuel inflation and food inflation are non-negotiable necessities, the RBI said in its monetary policy on 6 October, 2023. Clearly, RBI will do liquidity management via open market operations (OMOs) rather than raising rates to control any potential spike in inflation with “withdrawal of accomodation” being the pivot for now. It seems fair to not raise rates at this stage as core inflation has fallen dramatically. Let it be known that it is for the fourth time in a row that the RBI has not raised the repo rate by keeping the status quo in October. In fact, the last rate hike by the RBI happened in February 2023. Moving away from the RBI to set some context it is important to note that the country experienced the worst era of inflation from 2010 to 2014 under the Congress-led UPA. Under the UPA, retail inflation was more than 9 per cent in 22 of the 28 months from January 2012 to April 2014. During this time, inflation even crossed into double-digits, nine times. This was largely due to irresponsible fiscal policies, crony capitalism and policy paralysis. Fuel inflation is a complex issue due to the linkages with global oil prices. However, the Modi government has been forthcoming and transparent in its pricing policies, accounting standards and also in how it is using its cess collections for the benefit of the nation as a whole. No one should forget that the Congress left unserviced oil bonds of over Rs 2 lakh crore to be serviced by the Modi government. The Congress earned political mileage by burdening future generations via these oil bonds and hence it has no political propriety to lecture anyone much less the BJP on matters pertaining to inflation. The moot point to note here is that in Prime Minister Narendra Modi’s second term the highest retail inflation in the last five years in any given month was 7.79 per cent, which was in April 2022, on the back of severe supply disruptions, amid a raging Russia-Ukraine conflict. But under Congress-led UPA-2, the highest retail inflation figure was a staggering 12.17 per cent in November 2013. Coming back to July 2023, highest retail inflation was not in BJP ruled, but in Opposition ruled states, with inflation at 9.7 per cent in Congress ruled Rajasthan, 9.2 per cent in Jharkhand and 9 per cent in Tamil Nadu. Again in August 2023, it was in Opposition ruled states that retail inflation was the highest with Rajasthan at 8.6 per cent, Jharkhand and Telangana at 8.27 per cent each. Highest rural inflation in July 2023 was also witnessed in Opposition-ruled states, namely Jharkhand at 9.9 per cent and Telangana at 9.7 per cent. Highest urban inflation in July was again witnessed in Congress-ruled Rajasthan at 10.4 per cent. The inflationary trend in August was pretty much the same with Rajasthan under the incompetent Ashok Gehlot regime being at the forefront. With the intent to further lower inflationary expectations on 4 October, 2023, the Modi government raised the subsidy amount for Pradhan Mantri Ujjwala Yojana (PMUY) beneficiaries from Rs 200 to Rs 300 per LPG cylinder. Earlier, with a subsidy of Rs 200, the price of subsidised LPG cylinder was Rs 703. Now, with the subsidy being further increased by another Rs 100, the price for the subsidised LPG cylinder under the Ujjwala scheme has come down to Rs 603. The cut in LPG cylinder prices in October is the second such cut with the last cut on 29 August, 2023. Speaking of PMUY, India has achieved significant growth in LPG consumers in the past nine years. The active domestic LPG consumers have increased from 14.52 crore in April 2014 to 32 crore as of March 2023. This significant increase can be attributed to the PMUY which has led to an increase in LPG coverage from less than 40 per cent before 2014, to over 62 per cent in 2016, then to a whopping 80 per cent in 2019 and an astounding 104.1 per cent in 2022.Further, on March 24, 2023, the Modi government approved a subsidy for up to 12 refills per year for the beneficiaries of PMUY. A WHO report in 2018 said that Ujjwala Yojana had provided 37 million women living below the poverty line (BPL) with free LPG connections to support them in switching over to clean household energy use. This tremendous growth in LPG coverage among Indian households has been instrumental in improving women’s health by providing them with clean cooking fuel and an environmentally beneficial option by making the kitchens smokeless. The Modi government will also provide 75 lakh new LPG connections for free, under PMUY. At present, there are 9.6 crore beneficiaries of the scheme and with the 75 lakh new connections, the total beneficiaries under PMUY will rise to 10.35 crore. The subsidy for PMUY beneficiaries was introduced in May last year as the government had announced a series of relief measures amid surging global energy prices. Now let us go back in time to January 2014. The price of non-subsidised cooking gas (LPG), which customers buy after consuming their quota of subsidised cylinders, was raised by the then Congress-led United Progressive Alliance (UPA) regime by a steep Rs 220 per cylinder in January 2014. The cost of the 14.2 kg non-subsidised LPG cylinder that consumers used to buy beyond their entitled nine cylinders at subsidised rates went up to Rs 1,241 up from Rs 1,021 in Delhi in January 2014. In fact, in some places in India, Kolkata for instance, the price went up to as high as Rs 1,270 per cylinder under a thoroughly corrupt Congress-led UPA in January 2014. The erstwhile Congress government had in September 2012 capped the supply of subsidised domestic LPG cylinders to six per household in a year. The quota was raised to nine cylinders per household only in January 2013. Any requirement above this limit had to be purchased at market rates. That subsidised quota of nine went up to 12 cylinders only under the Modi government. Of course there is no restriction on the number of non-subsidised cylinders that a consumer can buy. Also note that State-owned oil companies revise rates of non-subsidised LPG on the first of every month based on the average imported cost and rupee-US dollar rate during the previous month. So exchange rate movements impact local LPG prices significantly as much as international prices of crude oil or other oil derivatives. While the Congress can harp about the fact that the Modi government had the benefit of lower global Crude oil prices, it fails to recognise the fact that the international dollar index (DXY) which was only trading at a level of 76 or thereabouts under the Congress led UPA-2 rose by a solid 51 per cent to as high as 115 levels, in September 2022. Despite a mammoth jump in the DXY between 2013 and 2022, it is to the Modi government’s credit that the average price of non subsidised gas cylinders under the last five years of the Modi government stands at Rs 762.80. And guess what? As much as Congress hates to admit this, the harsh reality is the average price of non-subsidised gas cylinders under the erstwhile Congress-led UPA-2 was a stiff Rs 954.20. Effectively speaking, the average price of non-subsidised LPG gas cylinder under the BJP led Modi government has been anywhere between 20 per cent to 30 per cent cheaper compared to the previous Congress-led UPA-2. The Congress kept fuel prices low artificially, but in the process, it wrecked the economy by running yawning fiscal deficits which then fed into higher inflation and higher interest rates. The average retail inflation under Congress-led UPA-2 was 10.25 per cent. Despite two Black Swan events, the average retail inflation under the Modi government in the last five years, however, has been far lower at 5.45 per cent. It is true that in July 2023, retail inflation shot up to 7.44 per cent. But that was due to heavy rains and floods in Himachal Pradesh, large parts of Karnataka and Uttarakhand and inclement weather in many other parts of the country like Maharashtra, Assam, West Bengal and Uttar Pradesh. Inclement weather led to a sharp spike in the prices of perishables like fruits and vegetables. Since food as a category has an over 46% weightage in the retail inflation basket, versus a mere 25 per cent weightage in the wholesale price index (WPI), even any minor changes in food prices have a disproportionately high impact on the overall consumer price index (CPI). But core inflation excluding food and energy prices has fallen dramatically to 4.8 per cent in August 2023. Also note that in April, May and June 2023, retail inflation was below 5 per cent, at 4.68 per cent, 4.25 per cent and 4.87 per cent respectively. July was an outlier, defined by abnormal weather conditions. While headline retail inflation in August was at 6.83 per cent, it is expected to moderate sharply and that is precisely the reason the RBI, in its credit policy on 6 October, 2023 maintained its inflation estimate at 5.4 per cent for FY24. In fact, in the last quarter of FY24, inflation is slated to fall to 5.2 per cent. Congress keeps harping about subsidised gas cylinder prices being a mere Rs 414 under UPA-2, but that is a big charade. That price of Rs 414 lasted for barely a few weeks in 2013-14 and the penetration level of subsidised gas cylinders was in any case, pathetically low under the erstwhile Congress regime, so the poor hardly benefitted. It was only after PMUY was launched by the Modi government in 2016 that the penetration level of subsidised cylinders jumped manifold, thereby helping the poorest of the poor. Having a product that is priced low can benefit people only if they have access to that product. Under the erstwhile Congress regime, subsidised cylinders existed largely on paper, but thanks to the game changing Ujjwala Yojana, under the Modi government, subsidised cylinders are now made available to rural households, even in the remotest corners of India. About two-thirds of India’s population lives in rural areas and in the past, prior to PMUY being launched in 2016, women typically used firewood, coal or dried dung cakes for cooking. But things have changed dramatically since then. India consumed a record 24.9 million tonnes of LPG in the financial year 2018-19, 53 per cent higher than the previous five years and 6.9 per cent higher than the previous financial year. The boost obviously followed one of the world’s largest social welfare programmes, the Ujjwala scheme, that provided new LPG connections to households in over 700 districts in India. Suffice to say that the PMUY is a heartwarmingly successful attempt to make the dream of smokeless rural India a reality. Around 88 per cent of poor families received refills under the Ujjwala scheme in 2022–23. Beneficiaries taking refills have increased from 3 crore in 2017-18 to 6 crore in 2018-19, 6.5 crore in 2019-20, 8 crore in 2020-21, 8.05 crore in 2021-22 and 8.41 crore in 2022–23. The total refills taken by the beneficiaries of the Ujjwala Yojana have increased from 16 crore in 2018–19 to over 35 crore in 2022–23 and that speaks volumes about how the outstanding vision of Prime-Minister Narendra Modi has truly transformed the rural landscape in more ways than one. According to former finance minister and senior Congress leader P Chidambaram, the Modi government earned Rs 26.5 lakh crore from fuel tax collections between 2014-2022. He adds that the total outgo on free food grain, cash allowances to women, PM-Kisan and other cash transfers is “no more than Rs 2.25 lakh crore — which is less than the annual fuel taxes collected by the Centre alone”. These numbers posed by the former finance minister are nothing but a vicious bunch of lies. The outlay on PMGKAY alone is Rs 5.9 lakh crore while under PM-Kisan over Rs 2.6 lakh crore has already been given to over 11 crore farmers. One is not even counting the huge amount of money being spent to give free health insurance under Ayushman Bharat to the marginalised sections of the society. According to the RBI, the total developmental expenditure by the Central government during the period 2014-22 was a whopping Rs 90,89,233 crore (Rs 90.9 lakh crore).This included more than Rs 26 lakh crore in the form of capital expenditure to modernise infrastructure and create productive assets, Rs 25 lakh crore for food, fertiliser and fuel subsidies and Rs 10 lakh crore on social services such as health, education, affordable housing, etc. It is clear then, that the collections from the fuel tax have been put to good use as developmental expenditure by the Modi government. It is unfortunate that a former finance minister (P Chidambaram), would miss out on these basic data points either due to sheer oversight or deliberate ignorance. Either way, it exposes the Congress and its falsehoods. The hard truth is as compared to Rs 90.9 lakh crore spent on developmental expenditure by the Modi government in the last eight years, the previous Congress dispensation spent only Rs 49.2 lakh crore over a 10-year period from 2004-2014. So to cut a long story short while the erstwhile Congress regime behaved like the reckless prodigal son and did not even bother to regret or repent for its recklessness, the government has repaired and reinvigorated the Indian economy with Prime Minister Modi taking the bold lead in combining the best of both – welfarism and unrelenting reforms. The author is an economist, national spokesperson for BJP and bestselling author of The Modi Gambit. Views expressed in the above piece are personal and solely that of the author. They do not necessarily reflect Firstpost’s views. Read all the Latest News , Trending News , Cricket News , Bollywood News , India News and Entertainment News here. Follow us on Facebook , Twitter and Instagram .