The Hindu Business Line : Don't control prices by fiat

That there is a disconnect between official inflation numbers and the reality on the ground is no secret. Prices of several essential and not-so-essential commodities have shot up in the last few weeks for reasons as varying as lower domestic output, sudden demand surge and soaring international prices. In some cases the price spurt was not entirely unanticipated; the government was simply caught napping. Under the circumstances, it would be tempting for New Delhi to re-impose controls to contain the price rise. But nothing could be more damaging. There is another danger; it will call the government's bluff — that reforms are irreversible and that liberalisation is here to stay.

Unfortunately, there is evidence that the Government has begun selectively to target commodities for imposing restrictions. First, it was cement, where manufacturers were `asked' to reduce prices. Sugar is on the radar with reports from Krishi Bhawan suggesting an imminent imposition of storage and other limits. Gold and rubber could soon join the list. People's representatives are said to be agitated over soaring gold prices. The rationale for being selective is unclear. There indeed are many essential food products whose rising prices are burning a hole in consumer pockets. Pulses and wheat, for example. The Government seems to be fighting a losing battle in reining prices in despite the recent harvest and imports. Obviously, one policy cap will not fit all commodities as reasons for their price behaviour are varied. Sugar prices are firming up because the crushing season has ended, working stocks are tight and the next cane crop is six months away. Despite controls in the form of 10 per cent levy obligation and the so-called free-sale quota, the sugar industry is breathing easy after several years of vice-like government grip. There is absolutely no justification for choking it anew, especially in view of the excellent prospects perceived for the new season beginning October. If anything, the sugar industry should be decontrolled by withdrawing the levy and free-sale quota restriction. Over-riding political interests must give way to infusion of efficiency and competitiveness in the sugar sector.

As for restrictions on bullion, it would be a joke because domestic gold market is almost completely aligned to and driven by the world market. Despite being the world's largest importer, gold prices are determined not by domestic factors but in London and New York based on the demand-supply equation and such non-fundamental factors as geo-political concerns, inflation fears and the role of speculative funds. It is an irony that India is called poor despite its annual gold imports of 700 tonnes worth over Rs 70,000 crore at current prices. If anything, the Government must seriously explore how best to raise additional revenues from this consumer splurge.

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