Inflation At An All Time High

With the recent sharp hike in prices of petrol, diesel and cooking gas, inflation has now skyrocketed to a 13-year high of 11.05 per cent, reflecting the acute hardship of common people and aggravating the crisis for the Congress Government, which has already been reeling under the conflict with its crucial Left allies over the Indo-US nuclear deal.

It’s not that the media is highlighting the price rise issue. Rather, it is tired of making people aware of the nexus between a section of dishonest businessmen and politicians who are finally responsible for today’s rising price. There was a time when the Government and businessmen would give importance to media reports against mismanagement and profit-making. Because of this, the Government would rectify the policies laid down and extend a helping hand to the common people. But those precedents no longer hold good. Profits made at common man’s cast take a heavy toll and any number of venal politicians knows how to tackle protesters. There is a lack of good leaders who can tackle rigged markets and serve responsibly.

Food security calls for long-term planning in order to correct the mismatch between demand and supply. Food grains don’t fetch attractive prices and farmers are migrating to cash crops. As rice and wheat prices off the farm don’t reflect the increase in input cost, there is a need to incentivize cereal production. One way to make food grain cultivation profitable is to increase productivity.

Better extension services and procurement and distribution networks are necessary if food prices are to be kept under check. All such policies have to benefit both producers and consumers. This all time inflation is the result of global forces, compounded by the sins of omission and commission of many past Governments, all of whom neglected agriculture. But the Indian public is known to be merciless when it comes to punishing governments that are unable to deliver on the price front.

If inflationary expectations intensify, as they are likely to, over the coming months, the government could be well set for a closing. It is no consolation that slowing growth and rising inflation seems to be global phenomena. Policy makers have tried a number of fiscal steps-cutting tariffs-as well as administrative steps like banning exports of selective food items. And though the full impact on prices is yet to be fell, it is unlikely to be significant. Monetary tightening will not be of much help either, as monetary policy acts with a lag. Rupee appreciation is an option that might help but, again, only at the margin.

In the circumstances the best bet would be to reduce tariffs (wherever possible), cut back on wasteful spending refrain from fuelling inflationary expectation, crack down on smuggling of rice but all these efforts are in the short-term. Long-term, there is no alternative but to make amends for years of neglect of agriculture; in other words, increase public investment, restore the extension system that played a vital role in the Green Revolution of the 1960s, revitalize the Seed Corporation and most important of all, introduce market-based reform.