India’s high growth story has now receded to the background with the onslaught of double-digit inflation while the Congress leadership of the UPA Government worked itself up to clinch the US nuclear deal, whatever be its political consequences including a possible earlier dissolution of the 14th Lok Sabha for elections, ahead of the May 2009 deadline. The Left, stubbornly opposed to the deal, has threatened to withdraw its support to Government if it went ahead with the agreement negotiated with IAEA on India-specific safeguards, a major step toward operation of the nuclear deal. It will choose its own timing to reduce the UPA Government to a minority status but the Congress hopes to rope in the Samajwadi Party to its rescue.

Allies sharing power in the UPA Government are not in favor of early elections and preferred a consensus on the nuclear deal with the Left on board. The Left has resisted the deal and held it up as long as possible mainly basing its objections on the foreign policy implications of the deal, which is viewed by the Bush Administration as a global strategic alliance with India. For its part, the UPA Government touts the contribution from the deal to the country’s long-term energy security and ending nuclear isolation if the deal gets through with the next stages before the US Congressional approval.

The Indian scene has dramatically changed with explosive political developments under way while inflation, on a relentless march, is hitting hard businesses and the people at large. There is a palpable sense of resignation in the Government to the unfolding economic developments while analysts at home and institutions abroad expect high inflation and overall growth slowdown are inescapable in 2008 and maybe even beyond. This gloomy assessment stems from the global oil prices on a continuous rise and already past the 143 dollar a barrel mark. Inflation worldwide is now led mainly by energy prices and, to some extent, by food and metal prices, which are already at record levels-Government economists in India, assume that the double-digit inflation would begin to moderate by October.

The Congress, battered in a series of state elections, needs an environment of lower inflation and improved supply management before venturing to seek a new mandate. Millions of depositors have suffered from inflation with their yields turning too negative. Rising interest rates are giving a big cost push for manufactures and services which could translate into higher prices and this could eventually lower demand for goods and result in some easing of inflationary pressures. The economy has to make a soft landing if it is to avoid even a mild recession.

It is now globally acknowledged that all countries may have to live with elevated energy, food and other commodity prices for a longer period. It is oil prices that are devastating economies of poorer countries and OPEC attributes the elevated prices to falling US dollar and speculation, and has rejected US calls for greater production contending that the market is currently well supplied. Emerging economies and the considerably worse off other developing countries have to manage their economies in conditions of unabated rise in commodity prices against the back-ground of continuing global financial market instability, growth slowdown and inflationary surge worldwide.