inflation figures hovering above 7, has shoot up the blood pressure of the UPA government, what with general election not far away. this hardly surprises me. what i am surprised to see is threats of agitations, nation-wide bandhs and fiery speeches by opposition leaders against govt’s inaction in controlling price rise. i mean you would be laughing your heart out at those images of opposition leaders on TV wearing colourful banners, rising prices of food products written all over it. huh. blame not them.
well inflation rate moving above 7 is certainly something to be worry about. but its still not something that warrants such over wild imaginations of our opposition leaders of a doomsday situation. the hype around rising prices seems more of politics than economics. at the same time govt’s blame on a difficult global situation to this price rise can not be accepted fully. i mean not that its baseless, but there is no gain in saying that high inflation rate in india is a reflection of global rise in commodity and crude oil prices.
india is a fast growing developing economy. any economy experiencing such a high growth, unfortunately has to bear with price rise. its a fairly common trade-off between growth and inflation. as income of individuals increases due to high growth and this puts pressure on prices. this is demand driven inflation. but is this the reason behind current price rise in india. well, not exactly. primary reason behind rise in food prices in india is less supply. our agricultural productivity is miserable. investment in improving agricultural productivity is far less than what is required. this has resulted in low yields compared to other emerging economies like china. also govt encouraging export of agricultural products has resulted in low supply in domestic markets. apart from this, inherent inefficiencies in our public distribution system has also not helped in controlling price rise.
now our govt has taken certain monetary (increasing CRR and interest rate) as well as fiscal (barring exports of rice and other food items, reducing duty on edible oil imports etc) measures to bring a halt in price rise. these are all short term measures. though it will help in reducing inflation to a certain extent, its impact on our growth will be negative. hence, govt has to seriously think about increase in our agricultural productivity by investing in agricultural research and marketing, improving the financial condition of farmers, etc.
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