Factional feud in the open When Nepal's Constituent Assembly (CA) was extended for three months on May

28, political parties agreed to finish the fundamental tasks of the peace process and prepare a draft constitution. Prime Minister Jhalanath Khanal agreed to resign to make way for a national unity government. Despite a promising start, there has been little movement on any of the fronts. Parties still do not have a deal on the modality and nature of integration and rehabilitation of former Maoist combatants. Differences persist on major constitutional issues. And a fresh powersharing arrangement which would include all parties is not on the table yet. The primary reason the process has been held up is the rift within the Unified Communist Party of Nepal (Maoist). Since the extension of the CA, chairman Pushpa Kamal Dahal Prachanda' has faced an unprecedented challenge from all other top leaders of the party. And all his focus has been on managing intra-party differences. Changing stance The factional feud among the Nepali Maoists has been an open secret for several years now. Senior vice-chairman, Mohan Vaidya Kiran' has emphasised that entering the peace process was essentially a tactical' step, not a strategic' shift. The party should remain committed to completing the revolution' and prepare the ground for this by sharpening the political polarisation. But vice-chairman Baburam Bhattarai believes that the main task for now is to institutionalise the federal democratic republic, which requires close collaboration with all other parties, especially the Nepali Congress. Between 2006 and 2008, Mr. Prachanda worked very closely with Dr. Bhattarai they even lived in the same house to enable the entry of the Maoists into open politics and push for a republic. This alienated Mr. Kiran who felt the party was getting trapped in bourgeoisie politics. As Prime Minister, however, Mr. Prachanda incorporated several elements of Mr. Kiran's political line; his failed attempt to dismiss the army chief is attributed to pressure from dogmatists. Last year, Mr. Prachanda and Mr. Kiran agreed on a common political line, declaring that the revolution's principal contradiction was now with India and its brokers, and the party would prepare for a people's revolt. Dr. Bhattarai was sidelined. But just before the constitutional deadline of May 28, Mr. Prachanda shifted track and allied with Dr. Bhattarai. The chairman declared, including in his interview to The Hindu , that there was no looking left and right, and that the party would now move forward to complete the process of integration and rehabilitation and writing a constitution. In principle, the Maoists accepted the modality proposed by the Nepal Army (NA) to create a mixed force under an NA directorate. Dr. Bhattarai supported the chairman's political line of peace and constitution, while Mr Kiran felt betrayed at Mr. Prachanda's u-turn. Unlikely alliance After the CA was extended, the Maoist chairman, as a gesture of good faith, sent the PLA soldiers protecting Maoist leaders back to the cantonments, relying only on state security personnel. But Mr. Kiran and leaders from his faction termed the move a sell-out, and maintained the dual security arrangement. Even as Mr. Prachanda was facing a challenge from one faction, the other group decided to strike. Dr. Bhattarai changed track and focussed on internal party management. During the war, he had challenged the culture of building a personality cult around the chairman. Dr. Bhattarai harboured resentment at being branded an Indian agent, and also felt Mr. Prachanda blocked his chances of becoming the Prime Minister last year.

This was the game-changer. Two factions, which had long fought an ideological battle, came together because they felt Mr. Prachanda had maintained his strength by playing them against each other. Mr. Kiran and Dr. Bhattarai insisted on a fresh power-sharing arrangement within the party, with greater responsibility to other leaders. Another vice-chairman, Narayan Kaji Shrestha Prakash,' and party general-secretary Ram Bahadur Thapa Badal' supported this campaign. Mr. Prachanda continued to command the loyalty and support of all top PLA commanders. They argued that this was not the time to weaken the chairman since only he could complete the peace and constitutional process. They pointed to the unnatural alliance of Mr. Kiran and Dr. Bhattarai. Over three weeks, the two groups engaged in a bitter debate on how to break the impasse. Tentative compromise Last Saturday, the party's warring factions arrived at a compromise. Mr. Prachanda would continue to be the party chairman and parliamentary party leader. However, he agreed to make Dr. Bhattarai the head of the parliamentary party board and propose him as the party's official prime ministerial candidate to lead a unity government. Mr. Kiran was to be made the head of the party's organisational and disciplinary departments. Mr. Badal would be given charge of the party's military affairs. And vice-chairman Prakash would be sent to the present government as the Deputy Prime Minister and Home Minister, replacing the present incumbent. A new team of Maoist Ministers representing all factions giving an equitable share to women and the marginalised communities would be sent to the present Cabinet. The chairman's political proposal was also ratified by the central committee on Monday. The Maoists have demanded that the leadership of the mixed force under the NA directorate be given to a former PLA commander; this force should have a combat role; and the entry of combatants should happen unit wise.' The party has said it is willing to complete the task of regrouping combatants by August 31. And while it would strive to form a Maoist-led national unity government, till that point, the present Jhalanath Khanal government would be strengthened. A potentially positive outcome of the episode would be for all factions among the Maoists to feel that they have a stake in the process, and act responsibly. But the intra-party deal has caused complications in negotiations with other parties. This is particularly true with regard to the reshuffling of Ministers. The opposition, NC, has asked for the Prime Minister's resignation as per the five-point agreement signed when the CA was being extended. It sees the present Maoist proposal to change its Ministers as a violation of the agreement. Prime Minister Khanal, too, is reportedly unwilling to change his Cabinet, and has asked the Maoists to focus on the peace process instead. Maoists argue that they are within their rights to change party representatives in the government. If the Prime Minister reshuffles the government, the move will increase the mistrust with the NC, which will see it as a consolidation of the left alliance.' If the Prime Minister refuses to do so, his relations with Maoists will deteriorate and the fragile internal Maoist compromise may break. What next? Instead of getting bogged down in changing Ministers, what makes sense for the Maoists is to focus on arriving at a detailed deal on integration and rehabilitation. Powerful constituencies both in the NC and the ruling party, the Communist Party of Nepal (Unified Marxist Leninist), have said they are willing to accept Maoist leadership if it takes a step forward on the peace process. There are substantive differences between the Maoists and other parties on who would lead the new force, what would be its mandate, the standard norms, rank harmonisation, and form of rehabilitation packages and cash handouts. In the best case scenario, the parties should aim to

bridge these differences and initiate the process of regrouping combatants before August 31. Concluding it by then is impossible. But even beginning it would signal that the peace process has moved to an irreversible stage, and reassure the others that the Maoists are getting detached from their coercive apparatus. If this happens, it will re-energise the discussions in the CA on contentious issues like the form of government, electoral system, and federalism. It will create a climate for a Maoist-led national consensus government. And it will provide the basis for another limited extension to complete the actual integration and rehabilitation of combatants and write the constitution. If there is no progress in the next one month, extending the CA will become an increasingly difficult proposition. As the biggest party and the dominant ally in the ruling coalition, the onus is on the Maoists to get their house in order and push the process forward. The churning among the Maoists has held up the political process in Nepal. An intra-party deal on power-sharing has now complicated inter-party negotiations.

Remembering a sociologist and Indologist of repute ROLAND LARDINOIS SHARE PRINT T+ HUNDRED TODAY: The Indian part of Louis Dumont's oeuvre stands for a rare coherent sociological enterprise that cannot be ignored. The French anthropologist Louis Dumont would have been 100 years of age on August 1, 2011. Although criticised, his interpretation of Indian society cannot be ignored. After World War II, Louis Dumont's anthropological oeuvre marked a new area for the sociology of India, and his work, although internationally acclaimed, is still open to debate. Dumont was born in Thessaloniki (Greece) in 1911 and died in Paris in 1998. He was first a student of the French anthropologist Marcel Mauss (1872-1950) at the Institute of Ethnology of the Museum of Man ( Muse de l'Homme ) in Paris, from 1936 to 1939, and later joined the Museum for Arts and Popular Traditions where he became assistant, then associate researcher from 1937 to 1951. His first book, La Tarasque (1951) is an ethnographic study of a popular religious festival in southern France. Yet, later he was to receive international fame and recognition for his work on India. Dumont was a prisoner of war in Germany (1940-1945), where he started learning Sanskrit with the German Indologist and Jain scholar Walther Schubring. After the war, he went to South India and did fieldwork among the Kallar in Tamil Nadu. In 1957, he published a monograph on A South Indian Subcaste: Social Organization and Religion of the Pramalai Kallar (1986 for the English edition, translated from the French by M. Moffatt, L. and A. Morton, edited with an introduction by Michael Moffat), which marked a profound change in the paradigm of the sociology of India. In order to understand the so-called Indian traditional society, Dumont rejected the framework of the village, which was then favoured by most scholars, and focused on

the caste (or the subcaste), emphasising the hierarchical social organisation which encompassed a territory wider than a village. Return from India On his return from India, Dumont became lecturer at the University of Oxford where he succeeded M.N. Srinivas who was going back to India. In 1955, Dumont was elected professor at the then sixth section of the Ecole pratique des hautes tudes at Paris (today EHESS School for Higher Studies on Social Sciences) where he taught the sociology of India, then comparative sociology. In 1957, in collaboration with the British anthropologist David Pocock, Dumont started a new academic journal, Contributions to Indian Sociology , published at Oxford and Paris, which continues to remain the main reference journal for the discipline today, after T.N. Madan edited it at the Institute of Economic Growth (Delhi) from 1966. Impressive work Nevertheless, Dumont's magnum opus remains his Homo hierarchicus published in French in 1967 (1970 and 1972 for the English translations). It is an impressive synthetic work with a strong theoretical background, in which the author presented his understanding of the Indian caste society as a whole. According to Dumont, people were ascribed an unequal status from birth and ranked from the Untouchables (who did not then call themselves Dalits) at the bottom to the Brahmins at the top according to the degree of purity attached to each caste collectively as well as to each individual. After this publication, Dumont distanced himself from the sociology of India, feeling that he had achieved what he wanted to say on the caste system. He started a new field of research that dealt with the genesis of the modern individualism grounded on an egalitarian basis, which he contrasted with the inegalitarian caste system. It was the subject of his Homo aequalis (1977), followed by Essays on individualism (1983), and German Ideology: From France to Germany and Back (1991). However, these works belonged to the traditional history of political and philosophical ideas and have no empirical grounding. Dumont's oeuvre has been discussed and debated by anthropologists in Europe as well as in India. His sociological interpretation of the caste system is both widely acclaimed and highly criticised. The most radical criticism emphasised that Dumont's brilliant analysis of the caste system is taken from a dominant internal viewpoint, whether from its priests (Brahmins) or its princes (Kshatriya), which is well expressed in and legitimised by the classical Sanskrit texts that Dumont widely used. From a sociological point of view, however, scholars need to question, first, the social conditions of the production of these representations that cannot be taken for granted, and, second, their social usages. The relations of power and domination that structure the Hindu caste system, which are partly denied from a textual viewpoint (and this, of course, cannot be ignored), have to be clearly recognised and analysed. Furthermore, the comparative sociology that Dumont developed was quite often reduced to a binary opposition between individualism and holism, or to a radical confrontation between the equalitarian West and the hierarchical traditional pre-modern societies, like India, towards which the anthropologist publicly confessed to having a nostalgic inclination. Nevertheless, the Indian part of his oeuvre stands for a rare coherent sociological enterprise that cannot be ignored or brushed away if one wants to understand the social making of contemporary India. ( Roland Lardinois is Sociologist, Centre national de la recherche scientifique, Paris; Centre de sciences humaines, New Delhi ). French anthropologist Louis Dumont's sociological interpretation of the caste system is both widely acclaimed and criticised.

Noise by numbers The ambient noise data coming from real-time monitoring systems in India's cities indicate that people are at risk of suffering harmful health consequences. Chronic noise in urban centres has been dangerously increasing mainly because of motorisation. In March, the Union Ministry of Environment and Forests took a significant step forward to quantify the problem by setting up real-time monitoring centres in seven cities Delhi, Mumbai, Kolkata, Lucknow, Bangalore, Chennai, and Hyderabad. These sites are now putting out data round the clock and what they reveal is worrying. The ambient noise in residential and commercial areas is far in excess not just of a healthy level, but the standards set by law as well. This is unacceptable. There is robust medical evidence linking exposure to chronic noise of a certain level with harm. The effects include loss of hearing sensitivity in specific frequencies and non-auditory effects like hypertension, heart rate disorders, and psychological stress. It is time the Centre and the States took this public health challenge seriously. The remedies are there in the Noise Pollution (Regulation and Control) Rules, 2000, which were amended last year to incorporate rising pollution concerns. New sources identified for control included automotive horns, firecrackers, and musical instruments; public places were defined for enforcement purposes. The major problem so far in enforcing the law on noise has been the absence of reliable data. A dramatic scaling up of the real-time monitoring system, which is a limited project now with a footprint of only 35 locations in seven cities, can reveal the magnitude of the challenge. It is welcome that the number of locations will be doubled in the existing cities and similar facilities extended to 18 others by 2012. But the data generated by the sensors should be in the public domain on the Internet, if the system is to serve any meaningful purpose. Restricting access to those in authority would obviously defeat the objective. According to the rules, any person can make a complaint to the Designated Authority, such as the police, if the ambient noise exceeds the prescribed standard by 10 dB(A) or more. Yet, without the means to measure the noise level, citizen won't be able to make a complaint and the authority won't be able to intervene. In parallel, the government must launch a campaign to highlight the rules and the ill-effects. India's metros are adding hundreds of new vehicles each day to overcrowded roads. In the absence of a driving culture and legal literacy, drivers are trying to honk their way ahead. This harmful cacophony must stop.

For the third time this month, gunmen attacked the strategic pipeline carrying natural gas from Egypt across the Sinai Peninsula to Israel and Jordan, Egyptian security officials said on July 30.

America's other debt crisis ROS COWARD SHARE PRINT T+ One word is missing in the American debate over the debt crisis: austerity. It's a revealing absence. In spite of the vast deficit, and despite the U.S. being the home of individualism, no way is being offered for individuals to make a difference by changing their lifestyles. In the U.K., we've become familiar with talk of the new age of austerity. Politicians of both left and right use the expression to frame the narrative about the cuts we're now facing. While both sides warn about this coming era, austerity is not negative in the British psyche. Here, associations with wartime soften it. Austerity is associated with personal changes which benefited society and made sense to people who learned to tackle wastefulness, to make do and mend. Long before the current cuts, austerity was making a comeback here, associated with the environmental issues of recycling, cutting consumption and reducing our carbon footprint. Indeed, the New Economics Foundation recently launched the New Home Front, arguing that wartime lifestyles are positive models for reducing our environmental impact. When we think growing our own veg, staycations rather than vacations, cycling rather than driving, it has a fashionable appeal. Not so in the U.S.. In the five months I spent there earlier this year, I never heard the word austerity in political discussion. The Republican discourse is all about how the government is spending too much. The government must tighten its belt. There was nothing about individuals living beyond their means. Overconsumption Yet the U.S. deficit is founded on overconsumption, made possible by too much consumer credit and, less well recognised, too much environmental credit. In the current war of words in Congress, there are no references to the immoral lending that encouraged people who could not afford it to invest in the American dream. That's what led to the property crash and the financial crisis. That has disappeared totally from political argument. From individuals I heard nothing about the need for prosperous people to change their ways. There are, of course, many worthy green shoots, such as the locavore movement or the greening the campus initiative at the university I was visiting, where a newly appointed sustainability officer tries to cut energy use. But people like him have their work cut out. The whole of the east coast and the rust belt are vast, shocking landscapes to which many Americans seem oblivious.

This is a society which has lived not just beyond its economic means but beyond its environmental ones too as the hundreds of miles of abandoned buildings, abandoned cars, and endless highways bear witness to. Yet the American dream survives. You're either in it, or out of it. Being out means destitution. Individual lifestyles are boom or bust. In the U.K. I know many people who reject consumerism, getting involved in poorly paid environmental or political work. We regard them as rather honourable. In the U.S., if you don't have money you don't count. None of this is supposed to indicate we've got it right here. Far from it. The British Prime Minister, David Cameron, the politician most often heard referencing austerity, has not linked it to a vision for a green economy. And the relaxation of planning controls with the potential to trash the environment would be a case in point. But at least words like thrift, simplicity and sustainability don't carry such negative connotations. They suggest we have, at least, a place to work from. In the U.S., the ideological mindset makes these negative terms, which in turn makes the future there look bleak. Their problem isn't just fixing government spending, but ultimately counting the real costs of the American way of life. ( Ros Coward is a professor of journalism at Roehampton University .) Guardian Newspapers Limited, 2011 Amid the war of words in Congress, little is said of the environmental cost of the American dream.

Undemocratic ban Since law and order in the capital is handled directly by the Centre, it is obvious that the Manmohan Singh government is fully behind the decision of the Delhi Police to invoke Section 144 of the Code of Criminal Procedure in Jantar Mantar. The ban on any protest or even gathering of four or more people in areas under the jurisdiction of the Parliament Street police division is aimed, first and foremost, at Anna Hazare and his supporters whose campaign for a genuinely empowered Lokpal is all set to go into high gear from August 16. According to a formal notice issued by the Delhi Police, Section 144 has been imposed because the unrestricted holding of public meetings, processions, demonstrations etc. in the area are likely to cause obstruction to traffic, danger to human safety and disturbance of public tranquillity and that unless urgent measures to prevent such gatherings is not taken, there is danger to human life or safety and disturbance. This reasoning is an insult to the intelligence of all citizens and also demonstrates the extent to which the professionalism of the police is being compromised by the political motives of the ruling party and coalition. The last time Mr. Hazare and his supporters occupied Jantar Mantar, which has long been recognised as a legitimate site for public protest, there was no violence or breach of the peace. Indeed, the peaceful nature of

that protest was what made it so potent, and unpalatable for the government. That is why the Congress has decided that civil society groups must not be allowed to stage a repeat. By seeking to deny citizens the right to stage even peaceful, non-violent protests, the Manmohan Singh regime is betraying not just intolerance but also a lack of confidence in the face of growing public anger against political corruption and the cover-up of allegations of corruption. Although the government's own draft of the Lokpal Bill has not yet been made public, the fact that it differs from the proposals of Mr. Hazare and his team on several key issues is well known. If the government is confident about the robustness of its own proposals, it should not worry about the campaign that its critics are waging. Citizens at large have the ability to judge what is valid and what is not, provided an informed debate is held. Indians may be argumentative but they are not unreasonable. Instead of responding democratically to the civil society draft with logic and argument, the government is using its executive powers to stifle dissent. Though Mr. Hazare is free to stage his fast somewhere else, it is time the courts stepped in to put an end to this blatant misuse of Section 144.

Getting for the poor their due in private hospitals SHARE PRINT T+ The recent direction of the Supreme Court of India to government hospitals in Delhi to refer poor patients to private hospitals gains significance not only as one more pro-poor judicial pronouncement but also because it highlights one of the major contradictions in India's health care service: even as there has been a mushrooming of huge, well-equipped, multi-discipline hospitals in big cities serving the rich, thousands of rural India's poor patients have to go without even a semblance of medical care when they desperately need it. A two-member bench of the apex court comprising Justice R.V. Raveendran and A.K. Patnayak said that private hospitals would provide the patients from the crowded government hospitals necessary treatment free of cost, pending the preparation of a scheme that would involve private hospitals in treating the poor. It is perhaps to find out how far the private hospitals are right in claiming that if they provide total free treatment to the poor they would become bankrupt. When one of the counsels of the private hospitals told the court that nobody was occupying the beds allotted for the poor, the Bench responded stating, It means you are not welcoming anybody. The Bench was hearing an appeal filed by private hospitals against a 2007 judgment of the Delhi High Court, which directed the private hospitals to ensure free treatment to 10 per cent of inpatients and 25 per cent of outpatients. The High Court ruling made it mandatory for private hospitals on the ground that they had received subsidised land after giving an undertaking that the hospitals they built would provide free treatment to the economically weaker sections of the people. The Supreme Court directed the Delhi government and the private hospitals to draw the

necessary modalities for the purpose. During an earlier hearing of the appeal, the court came down heavily on the private hospitals. Stating that they behaved like star hotels, they were highly critical of these hospitals for collecting abnormal charges from the poor. They also took strong objection to their failure to honour their word and violation of the condition that the poor be given free treatment. The Supreme Court's bold initiative should enthuse social activists, political parties, and the media to carry the message that there is an urgent need to strengthen the public health security system in the country so that deprived sections of the people could have greater access to medical assistance in time. Only recently Nobel laureate Amartya Sen warned that gigantic inequalities in access to healthcare would lead to poor health in general. Commending the splendid work done by human rights activist, Dr. Binayak Sen among tribal people, he said that inequality in access to healthcare was not only bad distribution of the overall health benefits; it also reduced the overall health benefit. Practical, valuable suggestions Many readers, in their response to the last column (RTE: States can still do it with media backing, July 18, 2011), have come out with practical suggestions to get the RTE enforced in its true spirit. Dr. A. Padmanabhan, a former Governor of Mizoram with long civil service experience, highlighted in his letter the urgent need to give adequate attention and importance to elementary education. His five-point suggestion will be of value to educational administrators in their efforts to put the school education back on the rails. First, free night coaching classes for rural students could be organised by NGOs and others. Such classes were conducted by Village Development Sabhas or Sangams in the 1950s and 1960s. Secondly, frequent parent-teachers meetings could help everyone understand the needs of students and guide them on the right lines. Thirdly, a separate elementary education inspectorate must be set up in each Education District under the overall guidance and supervision of the District Collector and the District Education Officer. This inspectorate should visit schools more frequently, check on attendance, and ensure availability of the needed facilities, including mid-day meals. Fourthly, all elementary schools should have an adequate number of teachers and attendants. Finally, the media, NGOs, and public-spirited persons could play a vital role in addressing problems such as the high dropout rate, the poor quality of education, and nonfulfilment of the constitutional mandate that free and compulsory education be given to all children under 14. Saji V. Nair (Kochi) emphasised in his e-mail that the States should provide free primary education to children, now that they could afford to do it without private sector help. Kerala's commendable achievement in this field was possible thanks to the vision of its political leaders. Government-run and state-aided schools also deserved acclaim for this. He also suggested a common curriculum for schools across the country. Referring to the dearth of qualified teachers, Ritvik Chaturvedi (New Delhi) commented that the institution of teaching had been degraded to such an extent that teaching as a profession had become the last option for highly educated persons. Corruption and irregularities in examinations had devalued classroom teaching. Poor students found it difficult to study under such circumstances. In States such as Chhattisgarh that were affected by terrorist organisations, schools were being used for stationing policemen, he pointed out. S.V. Venugopal (Chennai) in his e-mail saw the issue from a different perspective. He commented that the neo-liberal supporters targeted the school education with ulterior motives because they were fully aware that it was elementary education that shaped the future of children. Hence blatant commercialisation of education began at the pre-school level, he stated.

Need for structural reforms to enhance supply response OOMMEN A. NINAN SHARE PRINT T+ The Reserve Bank of India's 50 basis point hike in its short-term indicative policy rate last week has surprised the markets which reacted sharply by losing 353.07 points on the day of the policy announcement and lost 674.09 points for the week ended July 29. In the first quarter under review policy rates were raised by another 75 basis points. This has raised operational policy rates by 425 basis points in a span of 15 months since mid-March 2010, one of the sharpest monetary tightening seen across the world. With the 50 basis point raise last Tuesday, that is, on July 26, the RBI raised the operational rates by 475 basis points till today (since March 2010). The central bank's first quarter review of 2011-12 has been different from its earlier announcements. Not normally used to criticising the government of the day, the RBI has this time around not minced any words, when it came to picking holes in the fiscal policy of the government. Among other things it said: While the anti-inflationary bias of monetary policy (of RBI) anchors inflation expectations, the present trends necessitate structural reforms to enhance supply response (from the government). Worry The real worry of the RBI is the persisting inflationary pressure rather than just a rise in commodity prices, which are generally pushing up prices. While the RBI is able to control demand pressures with tightening of funds in the system, scarcity of goods and services create further pressure on prices. The RBI's both the documents, Macroeconomic and Monetary Developments First Quarter Review 2011-12 and First Quarter Review of Monetary Policy 2011-12 by the Governor D. Subbarao were critical on the fiscal intervention of the government as well as its policy. In its macroeconomic and monetary developments, the RBI noted that a near normal monsoon is generally expected to have a softening impact on prices of food articles, but some risks to food inflation have emerged. The recent increases in minimum support prices (MSPs) for key agricultural commodities, though it aims at protecting producers from price risk, could in turn have some inflationary impact. It has been observed that the trend in prices of food articles more or less follows the increase in MSPs, with MSPs providing the floor to market prices. Since a cost-plus pricing approach underpins revisions in MSPs, trends in input costs and rural wages provide lead information about expected path of food inflation. Increases in wages in rural areas could also put pressure on food prices both from demand and supply sides, according to

the RBI. While increase in wages push up cost of production for agriculture, higher wage income is expected to provide purchasing power which could translate to higher demand, thereby pushing up prices. Price pressures Responding to persistent high inflation and increasing generalisation of price pressures, the Reserve Bank has significantly raised its emphasis on containing inflation. The impact of the antiinflationary measures through expected moderation in demand, however, faces resistance from commodity price and wage inflation, which constantly add to price pressures. The softening of global commodity prices could be temporary. If the accommodative monetary policy stance of advanced economies continues, commodity price pressures are likely to resurface. Recent trends in minimum support prices and rural wages suggest that given their conditioning influence on food inflation, a near normal monsoon may not ease food inflation significantly. Here, the RBI points out two things which would give further pressure to prices: the minimum support price for agricultural commodities; and the increase in wages of rural labour. Indian agriculture and its labourers were the neglected lot over the years and agricultural produce have always been under-valued. This is just the duty of the government to fix support prices for such commodities. On the wages, one has to relaise that this is the result of a persistent inflation continued for a long time which resulted in wages rising not only in rural areas but in the urban areas too. Today's issue is not food price inflation alone, but a generalised inflation. The RBI itself pointed out that the convergence of various measures of CPI inflation with WPI inflation reflects moderation of food prices and increase in non-food manufactured products inflation. Further, the RBI pointed out that with overshooting of the fiscal deficit target a possibility, its expansionary impact on demand could partly offset the moderation in demand resulting from antiinflationary monetary actions and weaken monetary policy effectiveness. High inflation over several months has not led to price-induced supply response in many critical commodities; in turn input cost pressures have spilled over to output prices, said RBI, adding, These trends necessitate structural reforms to enhance supply response while anti-inflationary bias of monetary policy anchors inflation expectations. The Reserve Bank feels that controlling inflation is imperative both for sustaining growth over the medium-term and for increasing the potential growth rate. In his First Quarter Review of Monetary Policy 2011-12, the RBI governor said that fiscal consolidation could contribute to a sustainable growth path by rebalancing demand away from government consumption and towards investment. The Reserve Bank's efforts of achieving low and stable inflation could also be supported by concerted policy actions and resource allocations to address domestic supply bottlenecks, particularly in respect of food and infrastructure, said Dr. Subbarao. The challenge for the government and the Reserve Bank, said Dr. Subbarao, was to ensure that demand was constrained in the short-term to bring inflation down, but to encourage supply response so as to expand the potential output of the economy in the medium-term. He said that it was important to recognise that in the absence of appropriate actions for addressing supply bottlenecks, especially in food and infrastructure, questions about the ability of the economy to sustain the current growth rate without significant inflationary pressures come to the fore. The economy's ability to grow rapidly for any length of time without provoking inflation is dependent on implementing policies, with corresponding resource allocations, which will allow supply of various products and services to keep pace with demand. OOMMEN A. NINAN

Increases in wages in rural areas can also put pressure on food prices both from demand and supply sides.

Reserve Bank springs a big surprise Recognises the signs of a slowdown but says that it is essentially confined to sectors that are sensitive to interest rates RBI Governor D. Subbarao announcing the first quarter review of monetary policy in Mumbai last week. PHOTO: VIVEK BENDRE Going by newspaper headlines and television commentaries, the larger than expected hike in the repo rate might seem to be the main, if not, the only noteworthy feature of the Reserve Bank's first quarter review of monetary policy. Before the policy statement, there was a near consensus among market participants that the RBI was nearing the end of its monetary tightening phase. Since March, 2010, policy rates have been raised by 425 basis points in ten instalments. Therefore, even though inflation has remained persistently high, the RBI will act by raising the rates but by not more than 25 basis points. Lending credence to the view has been the fact that there has been a slowdown and a steep hike in interest rates on top of the past cumulative monetary actions will be detrimental to economic growth. In short, the view among market participants was that the RBI would pause' after taking another baby' step, a 25-basis point increase. In that event, the 50-basis point increase has come as a shocker'. Predictably, the stock markets tumbled. However, as always, it is difficult to attribute the steep decline in the indices to one factor alone. Global stock indices have been under pressure at the same time. The inability of the U.S. administration to reach an agreement with the Opposition over some critical issues of the federal budget has been the main cause for worry for the global stock markets. Returning to the monetary policy, it is likely that the RBI intended to spring a surprise. So persistent has been inflation that something out of the way was needed. In that sense, the larger than expected hike in the policy is akin to past RBI actions in announcing monetary measures in between two policy statements to catch the markets off guard. However, in those days there were four policy statements and the period between two statements was sufficiently long. The impact of an unexpected interest rate change would consequently be more on markets and intermediaries not expecting an intervention by the central bank. Nowadays, with eight statements in a year, the scope for announcements outside the scheduled policy dates has been reduced although there is nothing that prevents the central bank from

doing so. The other more plausible explanation as why the markets were surprised by the large hike is that the participants simply misread the direction of the monetary policy over the recent past. Deputy Governor Subir Gokarn has said that there has been a decisive change in the central bank's monetary stance consequent to the change in the inflation trajectory. Inflation is not expected to come down. A mild policy response, which is also well anticipated such as a 25-basis point hike, will not help in moderating inflation expectations. Moreover, it is not as though the RBI has totally shunned hikes above 25 basis points. As recently as on May 3 at the time of the annual credit policy, the RBI hiked the repo rate by 50 basis points. Focus on inflation Though focussed on inflation, monetary policy can never ignore economic growth. The RBI has recognised the signs of a slowdown but says that it is essentially confined to sectors that are sensitive to interest rates. There is no evidence yet of a broad-based slowdown. Several indicators such as exports as well as imports, indirect tax collections, corporate sales and earnings and demand for bank credit suggest that demand is moderating but only gradually. The above reasoning notwithstanding, the RBI's decision to stick to its growth projection for the current year at 8 per cent first made in its May 3 policy statement has come as a surprise. It is no surprise however that the year-end inflation projection has been marked up by one percentage point to 7 per cent. Inflation remains the dominant macroeconomic concern. Actual inflation so far has been even higher than expected. In particular, non-food manufactured product inflation has been significantly higher than the average rate of 4 per cent over the last six years. Crude oil prices remain volatile. Fuel prices The recent increase in domestic administered fuel prices and the Minimum Support Price for certain food items will keep adding to the inflationary pressures. The overwhelming emphasis on containing inflation is to be seen in the context of the traditional trade-off between growth and inflation. That the RBI has come out decisively on the side of inflation control has been well recognised for a long time and certainly since May 3 when the annual policy was announced. The government would play its role in tackling inflation through the quarterly review. Supply side initiatives, especially concerning food and infrastructure, have been mentioned as also reining in fiscal deficit. The burden on the monetary authorities is that much enhanced if the government does not do its bit. To quote from the policy review: One of the objectives is to reinforce the point that in the absence of complementary policy responses on demand and supply sides, stronger monetary policy actions are required.'' C. R. L. NARASIMHAN A single line of attack (interest rates) on a multi-faceted problem (inflation) will not be effective. The government should do more.