Inflation up, markets down: is Modi's honeymoon over?

After fortnight-long good time, problems seem to be mounting for the new government

shantanu

Shantanu Datta | June 17, 2014




Prime minister Narendra Modi has had a great run for nearly a month. With inflation admiringly low when he took over, the stock market going through a heady run and the rupee playing stronger by the day against the dollar, Modi’s promised “achchhe din” seemed to have come true.

A quick recap of the initial heady days, then:

The BSE index crossed the 25,000-mark for the first time in history on May 16, the day the BJP won a landslide in the general elections. It achieved a peak of 25,364.71 during the day before closing at 24,121.74 – certainly a shave but an all-time high.

On June 5, the Sensex closed at 25,019.51 – its first close above the 25,000-mark. Records went flying as it achieved one high after another in the days to follow.

At the same time, the rupee, which had tanked to a record low of nearly 70 per dollar in the autumn of last year, also surged as Modi chariot wore on, going up to 58.285 on May 23 – three days before the new PM took oath of office. On June 17, it recorded 60.175 against the dollar, having weakened past the 60-per-dollar mark for the first time since in over a month.

Inflation, too, was down to 5.4 percent in May (though accelerating from 5.2 percent the month before).

With a below-normal monsoon forecast by the met department and the crisis in Iraq showing no signs of abating any time soon to ease oil prices, all the indicators are set to only get worse as the months draw on. Add to it extraneous worries like the ongoing strike at wholesale markets in Nashik, the main hub for onions for many parts of the country, and the new government might have to start wiping tears off consumers much before it expected.

On Tuesday (June 17) opposition leaders from the Congress made hay at finance minister Arun Jaitley’s statement a day before that hoarding and below-normal rain have led to a spike in prices, saying that the BJP used to slam the Manmohan Singh government for much its 10-year tenure for the same reason.

“Jaitley is speaking the same language today but now the country needs results. Inflation should go down and whatever has been promised to people should be fulfilled,” Congress spokesperson Rashid Alvi said.

Pointing out that inflation has increased since the NDA came to power, former Congress MP PC Chacko said, “Producing more alone will not control the prices. The government should explain why inflation has gone up in one month since they have come into power… just blaming will not help.”

The Modi government is facing a slight hiccup on that front, too. While the PM has been silent on most issues barring his daily work, with the Twitter handle of the PMO posting updates at regular intervals, to the extent of even inviting criticism for a silence made famous by his predecessor, many of Modi’s colleagues still seem to be reveling in their role as the opposition.

The three biggest problems the three-week-old government has faced thus far – violence against women and law and order situation in Uttar Pradesh as well as the strife in Pune with a communal tinge, the power crisis in many parts but primarily Delhi that has received media attention, and the rising prices – have seen interesting approaches by the ministers in charge.

While home minister Rajnath Singh has been more or less silent – only slightly better than his predecessor Sushilkumar Shinde, who put his foot bang into his mouth each time he opened it to eject irrelevant remarks – finance minister Jaitley was quick to pass the buck on to third parties (including the weather) with whom the average citizen has zero contact, and who are thus unaccountable.

Power minister Piyush Goyal, meanwhile, breathed fire against the Congress government at the state and the centre for the mess the power situation in the capital is in.

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