Cool it: FM P. Chidambaram and RBI chief Y.V. Reddy

Over the last two months, the government has tried to curb inflation through various interventions-from reducing taxes to raising the cost of loans to nudging banks to go slow on lending. The question is: will these moves curb growth and dampen investor sentiment? Quite possible. For, blunting the spending potential of consumers will signal companies to put off investments, in effect, hamper economic growth. On the other hand, the reason for these interventions-inflation, hovering around a two-year high of 6.73 per cent for the last two weeks-is beginning to worry the companies, since higher inflation will dent profitability. That's because rising input costs (the reason for inflation) cannot be transferred to the consumer without sales getting affected.

Clearly, the intervention is more in the nature of chemotherapy-side effects galore.

While the government is grappling with the pace and intensity of intervention to balance inflation and growth, good economics demands a wider debate to derive an optimal solution for the problem: First, how about inflation-led growth? Secondly, why not hasten the pace of inclusive growth in the financial sector? The first issue is not likely to find immediate favour with the political class, given the psychological value of the inflation figure in the eyes of the voting class. But fact remains that any serious attempt to tackle inflation will nibble into growth.

Mitigation of such side effects lies in hastening the pace of inclusive growth in the financial sector-the reach of the banking sector as a percentage of the country's GDP is a little over 50 per cent, compared to over 100 per cent in developed countries. This growth is already evident, with the banking system spreading its arms beyond the metropolis-notwithstanding the repeated interventions by the government over the last few months, credit growth is still robust, although now there are some signs of the growth slowing.

The other aspect of structural reforms in the financial sector that will reduce the inflationary pressure on a system is the development of a mature long-term debt market. In the absence of this, the financial market is akin to a sail boat in high seas-interest rates can be significantly volatile. This measure is all the more important given the direction of trade, which points to integration with the global markets. After all, the recent cause of inflation is the rise in prices of primary goods in the global market, be it wheat, whose prices have risen three-fold over the last few years, or crude oil prices (we import more than 70 per cent of our needs). Given that inflation is a symptom, palliatives need to be carefully administered.

Wanted Dialogue

Can you base an important policy of state on statistics that are 76 years old? Logically, the answer to that should be an emphatic no. But Indian politicians, with rare exceptions, have never been known to think logically. When Union Human Resource Development Minister Arjun Singh, in a desperate bid to shore up his party's (and many say his own) credentials with a crucial vote bank, announced a 27 per cent reservation for Other Backward Castes (OBCs), he forgot, or glossed over, an important fact: the government did not have up-to-date data on the caste-wise composition of society. The entire policy is based on the report of the Mandal Commission, which had based its recommendations on the 1931 census, the last time India's population had been collated on the basis of castes.

This was an obvious infirmity, and the Supreme Court, which was hearing a batch of petitions challenging the imposition of quotas, was quick to point this out while granting an interim stay on Singh's ambitious plan to emerge as the champion of a politically active vote bank. The hearings will continue, and so will the debate, and politicking over quotas.

This magazine has, several times in the past, iterated why it thinks quotas, as they are being implemented, are a bad idea. But that is not why bt is writing this edit. We feel the Supreme Court stay (it is only ad-interim in nature, so the final word on the issue will take some time in coming) offers the government some crucial time to thrash out a consensus on the issue. Reservations have divided Indian society like no other issue. And the government has not been able to shake off the impression that its proactive stance has more to do with the Congress' diminishing stock at the hustings than with any real concern for the deprived sections of society. The need of the hour is a sustained dialogue with all sections of public opinion.

The impression, unfortunately, is gaining ground that the pro-quota lobby within the government is hell-bent on pushing through its agenda, regardless of the cost. While this may benefit the high priest of the quota raj politically (though we doubt if it will), it will needlessly lead to a legislature-versus-judiciary tussle in which the net loser will be the institution of democracy. So, in addition to poisoning the social fabric of the nation, quotas will also lead to a weakening of the very edifice on which this nation stands.

Our request to the government: abandon this path of confrontation and begin the dialogue now.

The Halo Fades

Troubled times: CPI(M)'s Karat

You have to hand it to CPI(M) leaders. they don't cow down easily. Reacting to the killings in Nandigram in West Bengal, Prakash Karat, General Secretary of the party, said the incident was "regrettable and unfortunate". Biman Bose, Chairman of the Left Front in West Bengal, reacted to the Calcutta High Court ordering a Central Bureau of Investigation probe into the incident by calling the judiciary "a giant crab trying to eat into the very foundations of democracy". That's not all; the party also poured vitriol on West Bengal Governor Rajmohan Gandhi's public proclamation of anguish at the Nandigram massacre. The norms by which these self-styled keepers of national morality judge other political parties obviously do not apply to themselves.

The smaller partners in the Left Front, however, haven't been so evasive. CPI General Secretary A.B. Bardhan called the police firing "barbaric". Some other partners have called the CPI(M) "arrogant". And many intellectuals and activists, the Left's so-called "fellow travellers", who still control the country's knowledge filters and shape the public discourse (mostly for the party's benefit), have also come out openly against the issue. The monolithic Left, which has always (except during the NDA regime) exercised influence out of proportion to its strength on the ground, is beginning to display the cracks that it has, till now, successfully papered over.

So, is the Left Front on the verge of a break up? Well, it's still too early to say, but the signs of dissent and disaffection within its ranks are clearly visible. Will it have an impact on national politics? Definitely; and the fallout will have both positive and negative effects.

If the Left splits-and stripped of the moral authority it (unjustifiably) enjoys-it will find its clout at the Centre considerably pared, though this will become evident only after the next general elections. This will take away the effective veto it now enjoys over economic legislations. Most people will view this as a huge blessing.

On the flip side, it will allow smaller parties like the Forward Bloc-which has threatened to oppose the Reliances and the Wal-Marts from setting up retail chains across India-to behave like loose canons. Without the guiding hand of Big Brother, the smaller parties are likely to become even more irresponsible, especially on economic issues on which their views are still guided by antediluvian theories which have been rejected elsewhere in the world.

The Big Question, though, is: will the Left Front break up? It will be touch and go.