When sorrows come, they come not single spies/But in battalions, said the bard. And that is what is haunting the dream team of India's economic management today. Till inflation has raised its ugly head once again, everyone thought that India is successfully journeying from a regulated economy to free market economy without any hiccups. But the recent developments have proved it to be a temporary phenomenon: globalization has only widened the gap between the rich and the poor, with poor growth rate in job creation and poverty reduction and to cap it we are today plagued with rising inflation that stands at 6.7%—the price rise being felt more in essential goods such as food grains, edible oils and vegetables that hit hard the already marginalized sections of the society.

Obviously, the first victim of these developments is the Budget 2007: government has increased budget allocations to social sector under the heads of education, healthcare, irrigation, and rural infrastructure at the cost of core infrastructure development; capped cement prices; banned futures trading in rice and wheat; banned export of wheat and pulses, etc., which the armchair critics dubbed as reversal of our journey towards free market economy.

Yes, they do have a point in what they are saying, but that is not `all'. To better appreciate the other side, let us first take a deeper look at some of the budgetary provisions. Market reports indicate that in the recent past, cement prices have risen by over 25%, and reacting to this phenomenon, the government has resorted to capping the cement prices. True, such arbitrary fixation of prices by the government can suppress fresh investments in cement industry, which means further shortage in supplies in the days to come. It can also cause pressure on prices, once the control is lifted. Secondly, such governmental intervention in market prices is a good enough cause for external investors to get jittery of Indian reforms, which the critics consider is not in the long-run interest of the country. Nevertheless, in the short-run, this measure is certain to pull down the prices.

The Analyst Magazine, Budget 2007, Economic Management, Globalization, Free Market Economy, Budget Allocations, Governmental Interventions, Global Financial Markets, Monetary Policy, Market-driven Economy, Market Transactions, Commodity Futures, Infrastructure Development.