Inflation threat to India's coalition
Saturday, 19 July 2008
Amy Kazmin, FT Syndication Service
NEW DELHI: India's inflation rate rose slightly to 11.91 per cent for the 12 months ending July 5, highlighting the economic pressure on the Congress-led coalition government as it fights for its survival ahead of a crucial confidence vote next week.
The government has been struggling for months to curb inflation, which is now at a 13-year high and well above the political comfort zone of 5.5 per cent.
Along with prices, interest rates have also surged, with the central bank's key lending rate hiked last month by 75 basis points to 8.25 per cent, which was its highest in six years.
P. Chidambaram, finance minister, said that data suggested the central bank's monetary policy measures were taking effect, although he admitted that there was "still pressure on prices".
Surging consumer prices and interest rate rises are likely to hurt the ruling coalition in a July 22 "trust vote" intended to reaffirm its legitimacy amid a controversy on nuclear co-operation with the US.
The Congress-led coalition government is seeking to muster support from about 21 small-party or independent parliament members to secure a majority and avoid early elections, or even to secure defectors from opposition parties.
But analysts say the high prices and interest rates, which are pinching India's poor and middle classes, are likely to deter many MPs from supporting the government regardless of their views of the nuclear deal.
"We are looking at an economic tinderbox," said Mahesh Rangarajan, a Delhi University political analyst, predicting a "nail-biting finish" for the government.
Any non-government MPs who support the coalition "may have a lot of explaining to do to their constituents" given current economic conditions, he said.
The Congress-led coalition called for the confidence vote after leftist parties withdrew their support over the nuclear co-operation deal, which they and the Hindu nationalist BJP say would subordinate India's nuclear ambitions to Washington's whims.
In an impassioned public speech, Sonia Gandhi, the Congress party leader, last Thursday insisted the deal was essential for meeting India's rapidly growing energy needs.
NEW DELHI: India's inflation rate rose slightly to 11.91 per cent for the 12 months ending July 5, highlighting the economic pressure on the Congress-led coalition government as it fights for its survival ahead of a crucial confidence vote next week.
The government has been struggling for months to curb inflation, which is now at a 13-year high and well above the political comfort zone of 5.5 per cent.
Along with prices, interest rates have also surged, with the central bank's key lending rate hiked last month by 75 basis points to 8.25 per cent, which was its highest in six years.
P. Chidambaram, finance minister, said that data suggested the central bank's monetary policy measures were taking effect, although he admitted that there was "still pressure on prices".
Surging consumer prices and interest rate rises are likely to hurt the ruling coalition in a July 22 "trust vote" intended to reaffirm its legitimacy amid a controversy on nuclear co-operation with the US.
The Congress-led coalition government is seeking to muster support from about 21 small-party or independent parliament members to secure a majority and avoid early elections, or even to secure defectors from opposition parties.
But analysts say the high prices and interest rates, which are pinching India's poor and middle classes, are likely to deter many MPs from supporting the government regardless of their views of the nuclear deal.
"We are looking at an economic tinderbox," said Mahesh Rangarajan, a Delhi University political analyst, predicting a "nail-biting finish" for the government.
Any non-government MPs who support the coalition "may have a lot of explaining to do to their constituents" given current economic conditions, he said.
The Congress-led coalition called for the confidence vote after leftist parties withdrew their support over the nuclear co-operation deal, which they and the Hindu nationalist BJP say would subordinate India's nuclear ambitions to Washington's whims.
In an impassioned public speech, Sonia Gandhi, the Congress party leader, last Thursday insisted the deal was essential for meeting India's rapidly growing energy needs.