Inflation Demands Immediate Attention

Investment in onions is giving highest returns these days, thanks to the rising food prices, actually thanks to the government.  In the week ended 8th January the food inflation rate was 15.52 and was 18.32% in the week ended 25th December. Surely, there has been a decline in food inflation as well as the overall inflation but that is not enough. The analysis report by RBI on 25th January suggested that high inflation is a risk to growth.

There can be innumerous reasons given for this, from the rising demand to the global rise in price of commodities. C P Chandrasekhar in an article in People’s democracy writes that the trend over the last one-and-a-half years suggests that there are structural factors at work that are setting a higher floor to the inflation rate. These structural factors are consolidation of production and trade, decontrol, reduced role of public agencies and public sector firms, and reduction in subsidies on inputs.

Another simple cause for increase in food prices could be the increasing number of farmer’s suicides. With farmers committing suicide and their children opting up for other professions, what else can be expected? The insufficient supply of agricultural products to the constantly rising population is driving us to a world of more hunger and poverty ridden people. In the light of this fact, the Indian economy needs to come up with comprehensive plans and policies, and measures to ensure their effectiveness in the agricultural sector.

In India one implication that inflation comes up with is that it is damaging the image of the ruling party, Congress, who has not been able to curb the rising food prices in the past 2 years. And, the opposition BJP is playing on the ‘Aam Adami’ card to get political benefits out of the situation rather coming out with strong suggestions and good criticism.

As this time the inflation is majorly due to food inflation, the worst affected are again the poor and middle income groups, with limited purchasing power. It maybe a little satisfying that these poor and middle-income groups belong to countries all over the world and not just India. Inflation is a global issue presently. China and Russia are the other worst hit countries.

The solution to this global issue needs to be found out immediately and executed properly over a period of time so that the Millennium Development Goal of reducing world hunger is completed on time i.e. by 2015.

For tackling the recent inflation the RBI said that the government needs to do fiscal consolidation and improve the quality of its expenditure. However, neither the fiscal policy nor the monetary policy alone would be enough to handle the situation. The government should come up with every possible solution to curb inflation, which includes better fiscal and monetary policies.
For managing this at a global level Jacques Diouf suggests that the issue of price volatility requires an effective coordination of decisions on investment, international agricultural trade and financial markets.

Undoubtedly, many nations are suffering through inflation presently basically due to the price rise in food products. But, that cannot be taken as an excuse. Policy measures need to be taken to curb inflation as soon as possible at the global as well as at the national level. In such a scenario it is all the more important for India to take some strong anti-inflationary measures and get out of the inflation trap immediately to sustain its economic growth.

Shikha Nehra

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