Finance Minister can’t do much in such matters!

Prices of food items rising, inflation a worry the government most just now! There is now an emerging crisis on the economic front. It is the inflation, rather the rising inflation. The word inflation is a difficult word. We don’t think that except some economist experts like Prime Minister of other professional economists inflation is intelligible. Certainly, a politician like the Finance Minister or any other Minister, the subject would be intelligible only as much as his economic advisers give him what inflation is all about, the measurement and the ways to control it.

One obvious way, the monetary way to control rising prices is to tighten the money supply in the system. But then the monetary approach is only a veil, a way of  hiding the harsh economic realities, the market realities is all the general public and the Leftist politicians are concerned with. Whenever there is arise in prices or a runaway price rise in several sensitive commodities like food items, then there is a general hue and cry.

It is now such a hue and cry is being made because there is a real rise in wheat prices, in pulses prices and several other sensitive commodities like sugar, some particular pulses like urad for which there is a high demand.

Wheat prices are said to have gone up more than 10.7 per cent. Pulses almost 17 per cent. Other food items that are causing worries, whose prices are rising, are: rice, heat, sugar, cooking oil, pulses and many other essential items. The Leftists are always the ones to raise such price rise as a core of their political propaganda. They believe that price rise only will agitate the public mind. So, when first the petroleum prices of petrol and diesel oil were raised there was the same type of high digit noise in Parliament and outside. This time too there is such a noise.

So many things contribute to the rise in prices, more so for the food items. First came the fuel prices rise. There is now the talk and even the pressure to go in for another price rise in the fuel items. This time, the petroleum minister tries to do this by resorting to some cut in excise on the fuel imports. And the government’s pious talk of allowing the oil companies to raise their prices in accordance with the international; a price is easily said than done.

The Left parties have some lazy ways to do things. That is to raise the issue in Parliament and pressurize the Finance Minister. The PM in his Red Fort speech also indicated that the price of petroleum, kerosene and LPG would be raised. The Left also have some peculiar thesis or theses on such matters. They blame the BJP for dilution of the Essential Commodities Act. Also, it is now fashionably said that the forward trading is the cause for the price rise. The Left also demand a crackdown on hoarders and black marketers. There are and may be some truth in all these allegations. But then such administrative interventions don’t give any relief, let alone any sustainable relief. The underlying cause for the inflation, uncontrollable inflation, if any, is the basic economic imbalances, the shortage of essential commodities.

When the government had slept all these years and when they didn’t bother to improve agriculture, they didn’t provide for funds to raise the acreage and also production and productivity of major crops like wheat and  certain pulses and oil seeds, then what will you have when there is a sudden demand? There will only be price rise and to blame Sharad Pawar or P.Chidambaram is only a lame excuse to overlook the failures elsewhere.

Now, one more important point. That is this: it is always good for a certain rise in prices; a moderate inflation is good for economic growth. So, said many economists, the famous ones being Lord Keynes and his disciple and heir in a sense, the late great economist, Nicholas Kaldor. So deficit finance and moderate inflation must be taken as a precondition for economic development. If we keep this basic fact in mind then everything falls in place. Now, we see what are the basic economic imbalances, more so in the food and essential items front.

We are promising so many things to the urban consumers as well as to rural consumers. So many populist policies to PDS, rice at Rs.2, as in TN, then so many such freebies, free power, free this or that, crowd the populist basket. So too the anti-poverty programmes like employment guarantee, rural development. Already the Central Government had spent more than 50 per cent of its budget in the first quarter to finance all these populist schemes. So, there will be a pressure on the supplies front.

The need to import wheat arose out of several policies. One was to allow the entry of MNCs into wheat procurement. When you allow such big players they would try to make quick profits, so there is a huge stock holding and the expected arrival of wheat imports might ease the price of this sensitive food item. Sugar, there is some ease, as there is an expected bumper crop. As for the pulses, the planned imports, the high pulses prices quoted by Burma must be overcome and every indication is that price of pulses can be controlled.

The really serious problem is the worry about the slowdown in the agricultural growth. The World Bank has put out a report. There is a steady decline in agricultural growth in the last 25 years. In the green revolution belt this sharp decline is particularly worrisome. In Punjab, Haryana and UP which together account for 74 per cent and 26 per cent of the country’s wheat and rice production respectively, there is this marked decline. What to be done?

It is here there seems no consensus, where there must a new robust.

The current kharif oilseeds acreage is also a cause of concern (press cuttings). Precise estimates of pulses cultivation area needed (press cutting) consensus is called for. What is now the worry seems to be the rise in almost all the essential items? The government has banned the export of wheat and pulses, allowed duty-free imports of sugar and wheat to check sharp rise in the essential commodity prices. Now, all the latest indications are that wheat prices rise is causing worry. Pulses, chana, urad prices are higher by about 31 and 70 per cent respectively than last year this time.

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