Does the finance ministry appear a little unperturbed by the rapidly rising inflation rate in the Indian economy?
The answer is a big no, if you look at the recent statements made by Finance Minister P Chidambaram, and the decisions announced by his ministry on the reduction in customs duty on petroleum and steel products.
Not only did the government reduce the duties, a senior minister in the government actually spoke to the Tata group so that its chairman, Ratan Tata, issued a public statement on reducing prices of products manufactured by Tata Steel. When was the last time Ratan Tata thought it necessary to issue a statement on cutting prices of products made by any of his companies, let alone Tata Steel?
It was an unusual statement from the Tata group supremo. And it was clear that it was made at the government's request, in an obvious bid to send out a signal to other players in the industry to pass on the duty cut benefit to the consumers in the form of a price cut.
Another objective was to use the price cut decision to dampen inflationary expectations prevailing in the economy. So the government has been serious about controlling prices.
But take a closer look at some other recent statements of senior finance ministry officials and examine the action plan they are contemplating, you are likely to get a more nuanced answer. You might actually start believing that perhaps a powerful section of North Block does not mind the inflation rate inching up a little further and staying there for the rest of the year.
The common belief shared by the finance ministry brass during the last few months of the National Democratic Alliance government was that the Indian economy has been so used to a "benign" inflation rate of 4 to 5 per cent that almost every sector starts sending out alarm signals if prices rise even marginally.
Nobody remembers that the economy was quite used to an inflation rate of 7 to 8 per cent till about 10 years ago, it would be argued. And the government would sit up only when the inflation rate hit the double digits.
That mindset continued even when the United Progressive Alliance came to power at the Centre. When the inflation rate crossed the 5 per cent-mark and threatened to touch 6 per cent, one of the senior finance ministry officials came out with that famous statement in which he suggested that the "long-term underlying" inflation rate was still benign. Whatever that might have meant, it did show the finance ministry's lack of adequate concern about rising inflation and its potential to cause political damage to the UPA government.
Finance ministry officials can offer three reasons for their apparent lack of concern. One, the rise in the consumer price index (which captures the movement in prices of a large number of items that people actually buy at the retail level) is still not very high, ruling at well below 5 per cent.
So, why worry about the rise in the wholesale price index that captures the movement in wholesale prices? Increased competition -- through open domestic trade and easier imports -- may have squeezed margins earned by both manufacturers and the retail traders and checked prices.
The second reason is the assessment that a little bit of inflation will make the finance ministry's task of achieving many of those impossible Budget numbers easy.
With a nominal GDP growth, projected at 13.5 per cent, an inflation rate of around 7 to 8 per cent can help the government achieve its numbers even if the GDP growth declines to less than 6 per cent.
Similarly, with most of the import and excise duty rates levied at ad valorem rates, a higher inflation rate increases revenue collections automatically over and above what has been budgeted. So, why should the finance ministry worry so much about inflation?
Three, there is a strong view in the government that any step taken in haste to control inflation might result in a tightening of the monetary policy that, in turn, can choke growth. So, the option is between accepting a little bit of inflation with higher growth on the one hand and lower inflation with stagnation on the other. A charitable view would be that the finance ministry may have opted for the former option.
Not surprisingly, it was Prime Minister Manmohan Singh who took the initiative in seeking the finance ministry's views and action plan on taming the monster of inflation. For the prime minister, inflation is a political threat.
The finance minister has the luxury of looking at inflation in a dispassionate way and decide whether he would opt for a price rise with higher growth. So, he may cut customs duties here and there, but his response would be guided largely by the economy's larger concerns.
And if the inflation rates do not drop after two weeks, you may well see the next round of measures to be taken by the government. And these are likely to be in the form of a tighter monetary policy. And just as in the case of the duty cuts, the initiative for this will come from the prime minister, once again.