If it happens in other countries then why should there be so much brouhaha when it happens in India? The Congress-led coalition government is underestimating the problem of rising inflation in India by describing it as a global phenomenon. According to the Congress ministers and leaders, if China could have a 12-year high inflation at 8.7 percent and Zimbabwe records a staggering 66,212.3 percent inflation, then why should there be any ruckus if the rate of inflation in India is below the Chinese and the Zimbabwean rates, at only 6 percent?

According to analysts, the government’s announcement of cutting duties on edible oils, banning export of non-basmati rice, cutting duties on maize imports to zero from 15 percent and extending a ban of export of pulses for a year is not enough to curtail inflationary forces. These would calm inflationary pressures for the time being, with the impact of the policies being effective only after a few weeks, but a long-term strategy should involve plans and programs to boost domestic food supplies.

With the current inflationary forces emanating from the supply side, due to rise in global prices of food and oil, monetary policy could do little to address the problem. In anticipation of rising inflation, bond yields are steadily rising and it touched a five-month high this week at 7.94 percent. The Reserve Bank is unlikely to raise the interest rate but analysts say that the RBI might lift its cash-reserve ratio (CRR) from 7.5 percent to remove a part of the inflation fuelling cash.

According to Suresh Tendulkar, a member of the Prime Minister’s Economic Advisory Council, rising food demand from India’s 1.1 billion people has outpaced the domestic supply. A long-term solution lay in increasing productivity, increasing land under irrigation and upgrading farming technology. Another problem that India faces is illegal hoarding of food grains and essential commodities. The administration should be honest enough to tackle the hoarding menace, as its role in creating inflation cannot be ruled out.

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Source: CommodityOnline