The Saga of Rising Prices and Sagging Hope

Inflation is dodging so called economic honchos in India, as legendary Dyan Chand used to dodge ball on grassy turf making his opponents biting their nails. Data on inflation scored yet another high, leaving the policy maker high and dry, who were trying to supress inflation and the price level, undeterred, rose like hydra.

We are neither winning the battles, nor will win the war on inflation no matter, who comes at the helm of affair to manage inflation. In their pursuit, to alleviate poverty, leadership is selling the lollypop of “Jupiter Velocity” but they are overlooking the phenomenon of “Policy Inertia”, which failed to arrest the rise in inflation.

Indians are getting poorer every month as their real wage is decreasing with the rising price level exposing them with the risk of acute poverty. The credit of this this recent inflation can be attributed to the ever increasing price of the Food articles, thanks to onions (323 per cent rise in prices of onion from August to September), Vegetables (rose by 89 per cent) and Rice (18.76 per cent) there is an escalation in the overall inflation by 18.4 per cent. (See Economic Times, 15 October, 2013).

Rising Diesel prices can also be ascribed to this phenomenon as Diesel price rose by 20.13 per cent in the last 3 months from its previous level and there exist a high degree of positive correlation between Diesel price and inflation.

Moreover, Wholesale price index (WPI) and Retail Inflation (RI) are not only rising but their difference is also widening leaving a significant gap between WPI and RI, which left many questions unanswered. (WPI rose to 6.46 per cent from 6.1 per cent in September from August. RI reached to 9.84 per cent in September from 9.52 per cent in August).

Zigzag movement of inflation data bringing “Kabhi Khusi Kabhi Gam” to ruling coalition but also raising doubt about their credentials to curb the menace of inflation. Is our economy on right medicine or are we serving paracetamol to typhoid affected patient?

Policy maker must understand that current inflationary phenomenon is result of supply side constraint and hence monetary measures are of little solace.

Besides, whatever monetary measures we are taking so far are result of knee jerk reaction and not a part of broad vision. For short run, it may work but in long run appropriate national level on agriculture reforms is required, in spirit and letter.

Growth carries no meaning if real value of money deflates. A huge investment is required in supply chain management which not only proved as shock absorber to farmers but also capable enough to safeguard the interest of “aam adami”. Government must pay attention on agriculture diversification. We know that economy is changing, but our demography is also changing. It is a time to pay a serious thought to inflation.