Intimidating Inflation

Food Inflation has a major role in impacting the Wholesale Price Index (WPI) of late in a realistic manner thanks to the due weightage given to food prices found to be fluctuating rapidly and almost consistently for a couple of years now. Both the Central and State governments are groping in the dark as how to keep inflation and especially food inflation under check. Look at the concerns being expressed by the Union Finance Minister from time to time. The latest concern is towards a sudden surge in food inflation to double digit at 12.13% for the week ended December 11. The Minister appears to have attributed the present rise to the sky-rocketing prices of the famous vegetable-spice namely the onion in the last few weeks which in turn was the result of excess rains and floods in some production centers of states like Karnataka and Maharashtra during this period.

Despite the concern expressed by the Minister and the Committee of Secretaries headed by the Cabinet Secretary in Government of India, the inflation continues to rise due to unrelenting trend in prices of onion, edible oil, milk, fruits and vegetables. The WPI inflation data reveals that the annualized increase in prices of onions worked out to 33.48 per cent, fruits 20.15 per cent, eggs, meat and fish 19.35 per cent, vegetables15.54 per cent and milk by 17.83 per cent. Onion seems to enjoy a pride of place in the market. Hence the necessity of a meeting of Committee of Secretaries on Thursday, December 23, 2010 to take stock of the situation while continuing to battle against onion prices that touched Rs 70-80 a kg in the last few days. Responsible people in the government and the trade unfortunately fail to set up a regular mechanism to study the situation, anticipate the factors responsible for fluctuations in the supply of those vulnerable goods and take timely remedial steps on a continuing basis. Fire-fighting exercises from year after year expose the hollow nature of understanding and awakening on such a burning issue.

Long-term planning and medium term strategy to thwart such a scenario is totally missing in the present scheme of things. And nobody is sure of finding a permanent solution to normal supply of agri-goods on a perennial basis without any hassles and excuses. Looking to the inelastic demand for such products in the short-run and medium term it should not pose any problem for the planner or administrator to estimate the actual demand of various food products at different times of the year under varying conditions and contingencies and once such an exercise is complete, the authorities should explore the possibility of meeting such sustained demand with the available self-correcting sources of production and systematic procurement by the private as well as public agencies. These calculations and arrangements for execution should ensure the availability of all those food products uninterruptedly in the market. It is easier said than done in the present scenario.

Prime Minister’s Economic Advisory Council Chairman Dr C.Rangarajan made a prophecy on Monday, December 27, 2010 that inflation was expected to come down to 5.5% by March, 2011. “ I think any level of inflation beyond 5% ( threashhold level of inflation) is unavoidable” he said. It is a paradox that an Economist functioning as the Prime Minister, a World Bank-trained economist Dr.Montek Singh Ahluvalia working as the Dy.Chairman of the Planning Commission and a well known Economist, namely, the Chairman of Prime Minister’s Economic Advisory Council and the farmer Governor of Reserve Bank of India viz., Dr.C.Rangarajan are unable to control the inflation in this country.