Rising food prices hit Indians in wallet, politicians at polls

The trouble brewing for India’s government is also brewing inside millions of cooking pots across the country.

Onions and lentils are essential ingredients in Indian cuisine. But in some parts of the country, prices for these staples have shot up by more than a third over the last six months, putting heavy pressure on household budgets -- and the ruling Congress Party.

With the party’s popularity flagging, reining in inflation has become a top priority for the government of Prime Minister Manmohan Singh. In a speech this week before parliament, Singh said he expected India to maintain an impressive economic growth rate of 9% in the coming fiscal year -- one of the highest in the world -- but he acknowledged the need to tackle rising prices.

“That precisely is the concern that I have,” Singh told the Lok Sabha, or lower house. “We are trying to curb inflationary pressure without adversely affecting the strong growth impulses which now characterize our economy.”

For months now, inflation of about 7% has stoked fears that India’s sizzling economy is overheating. The central bank has pushed up interest rates several times to curb the trend. That and other measures have led to recent signs that the momentum of price hikes may be slowing somewhat.

But the squeeze on the pocketbook of the aam aadmi -- the common man, in Hindi -- has exacted a political toll. Voters drove Congress from power in the states of Punjab and Uttarakhand late last month, in major part because of anger about the higher cost of living.

A day later, Singh’s government unveiled a budget containing proposals that he said would bring down prices, measures such as reducing import duties and excise taxes. With an eye toward elections next month in India’s most populous state, Uttar Pradesh, where his party is in for a tough fight, Singh also promised more “inclusive” economic growth, a recognition that the benefits of India’s boom have been unevenly distributed.

Although tales of Indian technological prowess have dazzled the world and Indian voices answer millions of international customer-service calls every day, the vast majority of this nation’s 1.1 billion people still live in the countryside. Agricultural development has failed to keep pace with manufacturing and services; hundreds of farmers committed suicide last year out of despair about crushing debts.

Soaring prices have aggravated the problems.

Through the end of last summer, inflation was fueled largely by the high cost of oil and petroleum products. But “in the last few months, what you’ve seen is that inflation has been driven by higher prices of food products: wheat, fruits, vegetables, milk, onions,” said Paranjoy Guha Thakurta, an economic analyst and commentator.

“That’s pretty disastrous as far as a country like India is concerned. For relatively poor people, food accounts for a larger share of ... income,” he said.

Here in the capital, housewives are paying about 16 rupees for a pound of lentils, up from about 11 rupees six months ago. The cost of rice has gone up by the same proportion. Onions are now nearly twice as expensive, a huge financial hit for laborers and others who often make less than 200 rupees (about $4.50) a day.

“This kind of inflation tends to translate into popular resentment very, very quickly,” Thakurta said.

The onion as political indicator has a track record in India. In 1998, voters upset about a sixfold jump in onion prices punished the Hindu nationalist Bharatiya Janata Party by sweeping it out of power in local elections in Delhi and Rajasthan. During the campaign, anti-BJP activists attached huge purple onion sculptures to car rooftops and drove them around town.

Next month’s state elections in Uttar Pradesh, home to the parliamentary constituency of Congress leader Sonia Gandhi, will be closely watched as an indicator of how much the ruling party has been weakened.

Even if Congress stumbles, it will be too early to assume any potential effect on the general election expected in 2009, analysts say. Of greater concern is the government’s commitment to its economic agenda, continuing a liberalization that, in 1991, launched the economy on the path of breakneck growth.

There has been backpedaling in some areas -- for example, in the establishment of “special economic zones” to encourage exports through tax breaks and lighter regulation. Officials had planned scores of such havens but scaled back after sometimes violent opposition erupted from farmers threatened by the potential forced sale of their land.

The government’s new budget also contains what some describe as populist measures designed to win votes but unhelpful for keeping growth humming. Import tariffs were reduced to a maximum of 10% but should have come down further, critics say, and social initiatives such as a rural job-guarantee program are likely to fall short of their objectives, if the history of other well-intentioned but poorly managed programs is a guide.

“This budget, unfortunately, is an opportunity missed,” said Armeane Choksi, a former vice president of the World Bank and current chairman of Hudson Fairfax Group, a New York-based investment firm specializing in India.

“The key actors fully understand what must be done. They’re smart people,” Choksi added.

“It’s the politics. If they cannot manage the political situation, if they become politically weaker, you’ll see not a reversal [of reforms] -- I don’t think that’s in the cards -- but you’ll see a slowdown.”

Labor reform seems to be out of the picture for now, as does the political will to cut fuel and electricity subsidies, Choksi said. Nor is enough being done to improve India’s poor infrastructure, perhaps its biggest impediment to faster growth.

For now, the government appears to be focusing on the fight against inflation. Data trickling in suggest that some of its policies are having an effect, but officials have pleaded for patience before longer-term measures bear fruit in keeping prices down.

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henry.chu@latimes.com