Thursday, June 12, 2008

Is It Inflation or Food Crisis or just Non - Governance

It is indeed the non-governance that is the central reason for the crisis sweeping the country whose foreign exchange reserves have reached a whooping 294 billion dollars. India stands fifth in the world in holding the maximum foreign exchange reserve. There is a wide spread opinion amongst the economists that considering the reserves that India holds at the moment, can wither any storm, and so the country is in a comfortable situation, which had never been the case before.

Ironically, the wholesale price index (wpi) reached 6.6 per cent in March, 2007. But by December of the same year, the inflation floated to touch as low as 3.2 per cent. The reasons behind the decline were invariably due to a number of measures taken by the RBI, prompted by the UPA core committee. But the beast of the inflation could not be tamed, as in March, 2008, the wpi arose sharply to 6.68 per cent. And this bullying inflation has caught us all by surprise, as it is now driven by both primary articles (food and non-food) as well as manufacturing articles.

It is true that the food crisis of a country is threatened when there is a steep negligence observed in the agriculture sector. The farmers are dying, they are not getting the right prices of the crops, the incumbent government is dilly dallying about the subsidies they offer to the farmers and a huge amount of tax-payers money is draining out by paying the debts of the farmers. These problems have not happened in one day, it took decades of the indifference of the government towards the agriculture sector. If most of our governments sympathise with the farmers at large, as they claim, why do the situations have come to such a pass? The concern has crossed all limits when we find our present Agriculture Minister occupied more with IPL and T20, rather than looking at the food crisis in India.

A couple of years back, our Finance Minister assured us convincingly that a value added tax would help in declining the prices of every item. These long and tiring years have passed since the VAT was introduced, but what is the outcome? It has only contributed to the inflation, and virtually raised the prices by nearly 25 per cent. Few parliamentarians have expressed their dissatisfaction, and asked to reduce the rate of VAT from 12 to 8 per cent. It is evident that VAT works meticulously in a unitary form of government and not in a federal system. But our learned FM gets solace with adding up numerous new taxes viz. service tax, fringe benefit, dividend distribution, education cess etc. etc. If allowed, he would not even shy away from introducing Jijiya tax on the people. One thing he does not understand is that adding up varieties of taxes only add to and magnify the inflation.

The present food crisis is not the one that the country had faced in the 60s and 70s. In those days, food items were in scarcity and poor people came out on the road to beg or sell their children. But now, it is the buying capacity of the people which has eroded considerably. A sharp difference in the pay structure between people, have enhanced the inflation to grow bloated. Some, earning lakhs per month, eating out at restaurants every day, do not even know the price of moong dal in the market; and most others are paid between 1500 to 3000 rupees per month to sustain themselves only to avoid relegated to the impoverishment. A country cannot flourish with a few rich men, but can be prospered if its most people live on the fat of the land.

Another major area of concern to prevent the food crisis is to take the international traders by the horn. The soaring of our foreign exchange reserves has become an eyesore to them, and they are bent on gouging out a large chunk out of it. The cheaply procured raw oil seeds and the variety of pulses from India are reprocessed and packed in Malaysia, Singapore, Taiwan by international traders only to sell universally at a whooping price. One example of this is the current price of Indian urad dal sold at Rs.170/- a kilo in Amman (Jordan). Now that the global trend of food crisis is on the rise, and that the market knows India's needs are large, the traders are prying to the affairs of India's crisis and ready to dent in the economy, only to siphon off some of the reserves of the riches of the new lord.

It is true that the impending problem is a complicated one and hard to cope with, but it's not irrevocable. The country is at present run by two parallel governments, supporting each other, one led by the Prime Minister and the other by the Chief of UPA core committee. If they persevere honestly and sincerely, they do have the potential to squeeze the tale of the beast, and restore normalcy to the finest order.


Blogger Udit said...

it reallly is surprising that we are facing this inflation problem on such a large scale, the government indifference is certainly adding to the misery. given that Manmohan Singh, Finance minister P Chidamabram and Montek Singh Alluwahlia are amongst the most respected economists in the world, they have looked all at sea.

the food crisis looks more global in nature. Australia has had a failed crop for 3 consecutive years. India's crop yield has been decreasing but pundits predict a good food crop this year, lets hope for the best!

Oil prises, one thing that i guess was missing in the post is i think the single biggest factor for overall increase in commodity prices world over. the recent price hike not with standing, the indian govenment's policy of subsidising oil looks flawed to some economists. given that in the last year, there was a record tax collection of over 100,000 crores whcih should have been used in building infrastructure, healthcare and educational institues is spent on subsidising oil with the subsidy adding up to as much as 240,000 crores!

June 12, 2008 at 11:26 PM  

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