Tackling inflation : sustainable approach needed
Dhurjati Mukherjee
There has been a lot of concern in the country about the rising inflation,
which had crossed over 6.40 per cent for the last two months, though it
declined to around 6 per cent. Also the consumer price index for rural workers
was in double digit even in the surplus States of Punjab and Uttar Pradesh.
Most political parties, have expressed anguish over the rising prices. Even the
Deputy Chairman of the Planning Commission warned quite appropriately : If the
Government could control inflation in the short-term with administrative
measures, the situation could be handled. But failure to do so will have
serious ramifications. Even Dr C Rangarajan, one of the Prime Ministers
advisers, echoed him.
The Economic Survey rightly took the view that inflation was due to a shortfall
in the supply of agricultural commodities. It is generally believed that this
price rise has been caused by faulty policies of the Union Government. As is
well known, the price rise has been steepest in essential commodities like
cooking oil, pulses, wheat, flour etc., thereby affecting the poorer sections
of society the most.
By encouraging multi-commodity exchange and forward trading, the Government has
kept essential commodities on the same footing as share prices of companies.
According to an estimate, around Rs 20 lakh crore is invested in the
multi-commodities market. There are apprehensions, and not without reason, that
those who have invested such a huge amount would not allow prices to come down,
even if there is adequate supply of commodities.
Moreover, procurement is not done at the right time by the FCI. It does not
support farming community by raising the minimum support price (MSP). The
argument given for this is that it has no money to subsidise the Indian farmers
but in the name of containing inflation imports are resorted to, mostly at
higher prices. It is indeed tragic that the countrys farmers cannot be
supported who are committing suicide but farmers in countries like Australia
are being given higher prices for foodgrains imported from there.
Rising prices are an invisible tax on the masses by which their money flows
from them towards the rich. The economically weaker sections, specially the
work force in the unorganised sectors, suffer the most because they have no
protection like increase in dearness allowance or the salary increases in the
private sector. And the booming economy means more disposable income in the
hands of those sharing this boom. This is indicated by the highest
manufacturing inflation in the last 18 months or so.
Inflation is always and everywhere a monetary phenomenon. This is the mantra
repeated tirelessly by the legion of Milton Friedmans disciples and is an
idea, which has taken firm root in mainstream thinking. Short-term trade-offs
recession (unemployment) and inflation are illusory according to this view.
Thus it is generally believed that excessive money creation leads to inflation.
As economists feel that the primary cause of inflation was excessive demand,
the most effective instrument to curb demand would have been the Budget. But
nothing has been done in the current Budget and experts believe that the
Finance Minister has just not done his job. It has, however, been argued by the
Finance Ministry that the Budget was deflationary, which however is not
acceptable even though expenditure growth is projected to be lower than revenue
growth. It is doubtful whether the Government would succeed in finally keeping
the expenditure growth lower at the year-end.
The present measures taken by the RBI to tighten monetary policy to contain
expansion of credit may be in the right direction. The recent fall in inflation
has been on expected lines due to the monetary and fiscal steps taken by the
Government and the RBI. Though the reduction on import duty on crude and
imported palm oil by 10 per cent has been right decisions a lot, however, would
depend on the rabi harvest and to what extent it is able the supply-side
constraints.
It may be mentioned here that Central Banks across Europe, Japan and China also
raised their interest rates in 2006 and is expected to do it again 2007. An RBI
statement pointed out : The stance of monetary policy has progressively
shifted from an equal emphasis on price stability along with growth to one of
reinforcing price stability along with immediate monetary measures and to take
recourse to all possible measures promptly in response to evolving
circumstances. Even the RBI Governor, Y Y Reddy, indicated that the Apex Bank
planned to maintain inflation below 5 per cent in the medium term, which
appears not quite a realistic proposition.
The situation today is definitely one of concern and the RBI has indicated that
the economy is growing at somewhat above sustainable levels, thereby risking
the acceleration of inflation in future. There is more money in the economy.
Broad money supply is running higher than the targeted 17-18 per cent.
The deposit rate in banks has gone up steadily. But the Government diktat and
control over certain segments of funds such as small savings and employees
provident fund lead the way for lower deposit rates. This implies less money in
the hands of the vulnerable section and senior citizens to meet the extra cost
of living. Whether the monetary steps of the RBI to curb liquitidity resulting
in stabilising prices work remains to be seen in the coming months.
Former RBI Governor, Dr Bimal Jalan, had suggested that he would rather go for
a GDP growth of 7-8 per cent with low inflation than have a growth of 9.5 per
cent plus and inflation rate hovering around in the 6-7 per cent range. There
are many others who subscribe to this view. But though some believe that high
growth and inflation go hand in hand, including the Prime Minister and Finance
Minister, it needs to mention here that China made it possible to attain 10 per
cent growth with 2 per cent inflation.
However, a certain section of experts like Dr Omkar Goswami, believe that there
is little RBI can do as the current bout of inflation is driven largely by the
supply side. The RBI measures of hiking cost of funds may only impede growth
and with it manufacturing and perhaps even services. But is it not better to
curb unsustainable growth to tackle inflation? It remains to be said that the
challenge of all economic policy makers is to combat the problem without losing
sight of medium and long-term goals and possibilities.
The Government is focussed on growth reaches the masses, constituting the
majority of the country. As has been aptly pointed out : Peddling prosperity
for all, based on budgetary sops and extra-budgetary support to a small portion
of the economic players, is now revealing the darker side of growth as a beacon
light of globalisation. It now appears that the windfall gains from
globalisation are coming to an end with world inflation creeping up.
Growth without welfare is sure to cause imbalances and vulnerabilities and lead
to resentment and chaos, which is already being manifest in different forms in
various parts of the country. If growth is not broad-based across sectors and
geographical regions, it cannot be sustainable and wholesome and cannot benefit
the larger sections of the population whose upliftment has become imperative
today.
http://www.assamtribune.com/scripts/details.asp?id=jun3007\edit3
Influx causing grave problem in NE
>From Our Spl Correspondent
NEW DELHI, June 28 In a significant remark, M Veerappa Moily Committees
Report on Administrative Reforms has conceded that illegal migration from
Bangladesh has created intractable problem in the region, reducing the
indigenous people to minority in some parts tracing rise of militancy to the
menace. The six-member Committee which submitted its report to the Prime
Minister on Monday, dwelt on the problem of illegal migration from Bangladesh
at length. Initially, this migration represented movement of peasants from the
over-populated eastern districts of Bengal to the sparsely populated and
fertile and fallow Brahmaputra Valley consisting Assam.
The redrawing of national boundaries following partition provided an impetus to
migrants from East Pakistan for reasons of personal safety to settle in Assam,
where their presence gave rise to ethnic and linguistic tensions. This was
followed by fresh influx of all communities due to the agrarian crisis in East
Pakistan. This migration has continued even after the emergence of Bangladesh.
The fear among the local populace that this immigrant population would reduce
them to minority, as has in fact happened in some parts, has fuelled militancy
in the region, the Moily Committee admitted.
The report goes on to say that militancy in Assam, on the foreigners issue
has multiplied and spread to many new areas. Large-scale immigration into
Tripura gave birth to militancy there in the 1960s the report acclaimed.
The Committee has further criticised the policy of giving autonomy to various
groups and communities. Ad hoc solutions resulting in widely varying degrees of
autonomy to different bodies sometimes within a single State have led to
competitive demands and when they are not met, to alienation and violence. The
report has also touched on the problem of militancy in the North-east. The
numerous militant movements in the region have different objectives, the
Committee noted.
Apart from causing huge loss of human lives, militancy has hampered economic
development of the region. The situation is compounded by the involvement of
some foreign intelligence agencies, which are providing material support to the
insurgents. Besides, the long porous international borders have facilitated the
movement of these groups and smuggling of arms, it said.
The problem of militancy in pockets of the North-east is obviously very
complex. The ethnicity, diversity, geography and history of the region demand a
comprehensive nation building approach for resolving the complex issues. Fair
reconciliation of conflicting interests in the region, adequate local
empowerment with accountability, infrastructure development, economic growth,
greater economic linkages with neighbouring regions and better governance and
democratic legitimacy must go together for the foundation of durable peace and
prosperity in the region.
However, in the short term, security agencies need to be strengthened,
extortion and abductions must be stopped, militancy should be curbed and
accountability should be institutionalised in order to protect human rights,
Moily Committee recommended.
The Committee has also noted the steps initiated by the Central Government like
revamping of the North Eastern Council, creation of separate Ministry of DoNER
for the region, earmarking of 10 per cent of Budgetary allocation of Central
Ministries for the region besides setting up of the Non Lapsable Pool of
Central Resources.
Moily Committee has recommended insertion of a new chapter in Unlawful
Activities (Prevention) Act, 1967 (ULPA) instead of enacting a new legislation,
to replace the controversial Armed Forces Special Powers Act. The new Chapter
VI A in the ULPA, proposes to empower the Centre to deploy forces under its
control to quell internal disturbance, even if the concerned State has not
requested for Central forces.
While recommending repeal of the dreaded Armed Forces Special Powers Act, Moily
Committee has spelled out several built-in safeguards in the new chapter to
safeguard against human right abuse by the security forces.
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