Dilly-dallying in economics

Inflation has touched 11.05%, we are told, a number that hadnt shown its face for the past 13 years, since 1995, when our present PM Manmoha Singh was the Finance Minister in PV Narasimha Rao's government at the Centre.
This number- the "rate of inflation" - is flashed in my face from the front pages of each newspaper in the country, whether its TOI or Hindustan Times or The Hindu or Mumbai Mirror, and when newspapers (using the word very frivolously, here) like mumbai mirror start printing stories that are such a far cry from the regular pot-holes and useless bollywood gossip, u know its something very, very serious. Add to this dire forecasts from glum-looking economic experts on our over-poplulated news networks that this number is showin no signs of coming down n you get a feeling that the world's on the brink of apocalypse...
But what the hell does all of it mean?? Surely prices rise, but why should anyone be scared of a number that just seems to be goin up by 1 or 2 percentage points?? And why does this "inflation" happen?? And if it is supposed to be so bad for us, why aren't the best economic minds of the country like Mr. Chidambaram and Mr. Manmohan Singh who are in positions of power doing anything about it all??
No matter whom i looked to for aswers to these questions, i could get no solid, substantive answers to my questions. The prices of everyday goods is going up, thats for sure, that much is understood. But amidst fears of prices rising to higher levels, the government raises the prices of petrol, diesel, kerosene and LPG cylinders. That must have seemed like the ringing of a death knell for the monthly budgets of middle-class families. This price rise, which the Finance Minister alongwith India’s Petroleum and Natural Gas Minister Murli Deora executed with the Opposition(mainly in the form of BJP) and even it's own ally in the UPA, the CPI(M) braying for Congress blood at a time when there's less than 4 months to go before the next general elections, may seem like folly of the dumbest, the most self-destructive kind. Surely, this was an action indicative of a tendency towards electoral suicide, especially after a poll done by the TOI indicated that price rise would weigh far more heavily on the voters' minds when the country entered election-mode than the Indo-US Nuclear Pact. Could the man hailed as one of the best Finance Ministers of all time, alongwith with the man responsible for throwing open the doors of the Indian market to foreign investment in the 1990s being at the helm of affairs as the Prime Minister have made such a faux-pas at a time when they could least afford it??
Consider this... the price of crude oil (as administered by the OPEC, the international cartel of countries that produce crude) was below 70$ a barrel less than two years ago. On Monday, the 30th of June, the price of crude rose to a new record high above 143$ a barrel. Now that's a rise of more than 100% in a span of less than 2 years in the price of a commodity thats of the cant-do-without-it variety for emerging economies like India and China. By comarison, the prices that Indians are paying for finished products like Motor Spirit (petrol) and HSD(diesel) and SKO(kerosene) has increased by only 5 to 10 percent. Hmmm... the math does not quite add up, does it?? Somebody, somewhere has to have been making gargantuan losses in order that we be spared the brunt of an increase in prices of this magnitude. Who is this masked benefactor of the denizens of the country? Who could possibly be rich enough to take the financial burden of an entire natin upon his head?? The answer, is the host of oil companies BPCL, HPCL, IOCL and ONGC that make us Indians proud by being let into the very select and very elite group called the Fortune 500 companies each year. Did you know that some of these multi-million dollar PSUs have been paying the salaries of their employees for the past coupla months by taking loans from the RBI in the form of 'bonds'?? Nearly all of them are close to bankruptcy and it is feared that some of them might have to shut down for good. And this stage has been reached because the UPA has not allowed these companies to increase the prices of petrol et al to account for the upward spiralling costs of production. The price rise effected recently, which were meant to be 'remedial measures' to bail out petro companies from potential and probable bankruptcy, is a classic case of 'too little, too late'.
"But, so what!?", one might say, "Isn't it the responsibility of the Government to protect the general public from the effects of price fluctuations resulting from market volatility??" It is true that India being a 'welfare state' (neither completely a free-market economy nor government-controlled one) the government is expected to step in and remedy the shortcomings of the market (like externalities, monopolies, business cycles) through the powers of taxation and government spending as also the expansion of the monetary base (printing out more money) and adjustment in repo rates (the rate of interest charged to banks on short-term borrowing from the central bank) and CRR ratios (the fraction of the deposits of cosumers that the bank is supposed to maintain and keep available with itself in cash, at all times). These tools of Keynesian economics have been incredibly useful in the past to remedy situations in which the markets have gotten too heated up and inflaton rates have soared. In any scenario, no government, no matter how munificent, can completely nullify the external pressures of price rise, for ever. But the million dollar question here is, should it do so, even if it could????
Some people would have us believe that a great disservice is being done to the general public by letting price rise on the outside affect the prices that we end up paying. While that statement may be up for debate, what is not up for debate is that "Price controls below market rates and/or the expenditure of national savings (financial reserves) to hold down prices against market pressures are inflationary." Just think about it for a minute: a rise in the price of a delivered good (either due to an increase in the demand or a decrease in the supply of the good) leads to a decrease in the demand for it, as the affordability of the good decreases. This resulting decrease in the demand relieves pressure on the supply and gives it a chance to bring up the supply (possibly through R&D ) so that the price becomes stable again. But the intermediate decrease in demand is a painful one and it takes a toll on the rate of growth of the economy. Any factor that inhibits this self-adjusting mechanism of price-rise and price-decline (which is the greatest virtue of the free market system) is defeated by the artificial control of prices by the government. Not letting prices rise is, in effect, a force of inflation. It is a falsification of demand and this makes the process of price-decline that much more drawn-out and painful for the economy .
Fears of the 'Peak Oil Limit' having been reached notwithstanding, OPEC has assured that the price of crude oil is artificially high right now and that the current level of supply is sufficient to fulfil the demand and that price-stabilisation to near-normal levels is expected to take somewhere close to a year, but the prices could reach up to 200$ a barrel before it starts depreciating to the actual price. (This move by the OPEC of announcing that prices could reach upto 200$ is a very, very irresponsible and harmful one for consumers if the current price is eventually identified as having been a fallout from the futures market as a result of speculation.) The issue of price rise would not have gained such humongous importance if it hadn't turned into such a make-or-break electoral issue for the UPA. All that is required now is to minimise liabilities, maintain a strong rupee and sit out this period of 1 year, but the question is, will the UPA still be at the Centre to see things get better??