India's inflation rate hit zero percent a few months ago - and alarm bells went off.
The World Bank and other development-watchers believe inflation of 5 or 6 percent is healthy for a country like India, because it draws money into productive ventures.
But India, for a simple reason, wants to avoid inflation as much as nature abhors a vacuum. ''Memories of prices jumping four and five times after World War II are very much alive,'' says the outgoing governor of the Reserve Bank of India, I. G. Patel.
''Inflation helped the drive to independence in 1947. No government today can be indifferent to inflation,'' he adds.
Fine-tuning the economy between inflation and recession has been a daredevilish exercise for the Reserve Bank and the government. When inflation hit 23 percent in the 1974-76 period, it was quickly lowered by a mix of budget cuts, credit squeezes, and ample help from foreign aid and high remittances from Indians working in oil nations.
The next bout, starting in 1980, had to be treated differently. It was spurred by world oil prices rising again, and high excise taxes on ''luxury'' goods the year before. The government found that its well of foreign aid and remittances could not be counted on. Also, the budget could not be cut because the nation was in the midst of a crisis in electricity, rails, steel, and coal, which needed help fast.
Money supply growth was cut in half, from 22 percent in 1980 to 11 percent in 1981. But in India, inflation is a phenomenon of a shortage in supply more than an excess of demand. Not to cut industry off from credit, the government went to the International Monetary Fund for a $5 billion loan, and opened wider the incentives for savings and increased industrial capacity.
''Inflation has been constrained, but we are keeping our fingers crossed,'' says Finance Minister Pranab Mukherjee. ''We are not out of the woods yet.'' A bad monsoon this year means the government will have to spend more on grain purchases for the poor.
''Our inflation is not the kind that comes out of union bargaining as in the West,'' says Mr. Patel. ''We don't have to drive labor up to the wall.''
To egg on industry to produce more goods, 1982 was declared the year of productivity. (Many industrialists interpreted that as increased production, however, and not greater efficiency.) Next year, Mr. Patel says, the slogan may be ''the Year of Investment.''
Inflation started rising again in May. Credit cannot be squeezed any tighter. The burden now rests on industry to rev up production under government's loosened regulations. Otherwise, India may have to go back to international markets for a large commercial loan.