Double Squeeze

Double Squeeze AS was entirely to be expected, the government has raised the prices of a number of vital commodities on the eve of the budget. Starting with the freeing of industrial lubricants from price control, substantial increases have been effected in the retail prices of liquefied petroleum gas (LPG), the levy price of sugar, the issue prices of wheat and rice supplied through the public distribution system and the retail prices of petrol and diesel. As part of the structural adjustment programme, the government has been putting pressure on the State Electricity Boards to raise power tariffs. There have also been substantial increases in coal and steel prices/ Significant cascading is a proven feature of these price increases' The government has been taking credit for control of inflation. The finance minister has been fond of saying, in defence of the fiscal compression attempted by the government, that inflation control even at the cost of cuts in public sector investment and in government spending on the social infrastructure sectors was justified since inflation hits the poorest sections of society the hardest. But what has happened in fact is that the people in general have been hurt both ways. While the unsuccessful fiscal compression, which has failed to yield the expected reduction in the government's fiscal deficit, has produced an industrial recession and job losses, the rise in prices, especially of essential consumer items, has continued apace. The over-the-year inflation rate, as measured by the wholesale price index, has been contained at about 8.4 per cent only because of the severe recessionary conditions in many manufacturing industries. But once the prices of basic goods are pushed up in the manner the government has chosen to do, the cost escalation and the pressure of surging monetary liquidity are sure to result in the re- emergence of general inflationary conditions.