Inflation remained a big challenge for govt, RBI in 2013

A surge in food prices ripped common man's pockets as the UPA government paid for its failure in the assembly polls in four states and may feel the heat in next year's general elections as well if it is not controlled.

Prices of kitchen essentials such as onions spiked to a record Rs 100 per kg and tomatoes touched Rs 80 in some states during the year, pushing the food inflation to double digit mark, even as the Reserve Bank tried in vain to contain the price rise.

The retail inflation, which is a better gauge of price rise and measured by Consumer price index, ruled in double digit for most months of the year with the latest November figures coming in at 11.24 per cent.

While the Reserve Bank on its part has been trying to tame the price rise by hiking key lending rates, there hasn't been much impact as the inflation seems to be entrenched.

"There is no easy solution to taming food inflation... There are no quick fixes for taming inflation. I am afraid it will take some time to contain this inflation. We are paying a political price for that and I acknowledge that but those are the facts," Chidambaram had said.

The wholesale price based inflation rose to 7.52 per cent in November, the highest level seen in 14 months.

This is much higher than the March-end inflation projection of the RBI at 5.5 per cent and also higher than central bank's comfort level of 4-5 per cent.

The government's effort to cool prices did not yield results as vegetables, especially onion, remained expensive through out the year.

Price rise in onion stood at 190 per cent in November, which raised the vegetable basket inflation to 95.25 per cent.

With price rise affecting the common people, the Congress lost the assembly elections in Delhi, Madhya Pradesh, Rajasthan and Chhattisgarh. Party President Sonia Gandhi referred to price rise as one of the factors for the defeat.

The country is set to go to polls by May 2014 and high inflation and costlier food items may pose a big challenge for the UPA government while making efforts to regain power for the third consecutive term.

"It is common knowledge that the government of the day will pay a price for high inflation, especially if inflation persists over a long period of time," Chidambaram had said.

The year saw Governor of the country's apex bank RBI acting as warriors against inflation as it hiked the policy repo rates to contain price rise, which in turn sacrificed growth prospects.

Former RBI Governor D Subbarao, whose hawkish monetary policy was not received well by industry and experts, had said: "There are hundreds of millions of people in the country who are affected by inflation. For poor people, inflation is regressive tax, it hurts poor people more than it hurts people like us. And we need to hear that silent voices".

Subbarao's unrelenting focus earned the ire of those in the government with Finance Minister P Chidambaram even remarking once that if the government has to walk the path of growth alone, it was prepared to do so.

Subbarao in a repartee, before demitting office had said, "I do hope Finance Minister Chidambaram will one day say, 'I am often frustrated by the Reserve Bank, so frustrated that I want to go for a walk, even if I have to walk alone. But thank God, the Reserve Bank exists'."

When former Chief Economic Advisor Raghuram Rajan took over the job of RBI governor from Subbarao in September, there were expectations of a rate cut to propel growth.

Rajan, however, hiked the key policy rate (repo rate) by 0.25 per cent in each of the two monetary policies soon after he assumed office. In his third policy in December, however, he kept the rates unchanged citing inflation was showing signs of decline.

Persistent high inflation, which the government and RBI unsuccessfully tried to control, would not augur well for the Congress-led UPA which has to face the electorates at the hustings.