The Hindu Business Line : Inflationary discomfort

"Willing to strike, but afraid to wound" may well sum up the existentialistic dilemma of the Left parties protesting against the price rise in several essential commodities. Whether the recent petrol and diesel price hike would turn out to be the proverbial last straw on the camel's back is anybody's guess. Yet, viewed dispassionately and apolitically, inflation concerns are very real. Consumers are paying much more for essential food items than the government inflation numbers would suggest. If any evidence of discomfort against the strong inflationary undercurrent in the economy was needed, the RBI provided it by raising the repo and reverse repo rates. The huge difference between farmgate rates and consumer prices suggests inefficient distribution chain and ungainly role of intermediaries.

While consumers are worse off, there is little evidence that farmers or primary producers are enjoying the price premiums of the open market. Intermediaries and speculators are skimming the market. We are not talking about fancy goods such as gold and silver whose market too has spiralled to dizzy heights; fortunately that does not really hurt. It is about essential food products whose prices have risen rather sharply in recent months, seriously compromising consumer interest. Wheat, sugar, pulses, edible oil... the list is long. Far from containing the price spiral, government's policy initiatives in some cases and inaction in others seem to fan speculative tendencies. The policy response to rising prices is half-hearted. Despite claims of strong rebound in domestic production of both edible oil and sugar, prices are far from consumer friendly. On the exchanges, pulses prices are dictated more by speculators than genuine traders or hedgers. The difference between the landed cost of imported pulses and their retail price is too wide for consumers' comfort. Current market prices do not bear any relationship with demand-supply fundamentals. The withdrawal of 10 per cent import duty on pulses, though welcome, has been announced four months too late. Adding insult to injury is the proposal to cut wheat supplies through the public distribution system and raise the issue price.

Rural people are worse off than the urban in this situation because their incomes have hardly risen in recent years with agriculture performing poorly. One more South-West monsoon is upon us; but there is little to suggest agricultural output is poised to display strong growth this season. Despite candid admission that non-performance of the agriculture sector is dragging the Indian growth story, there is hardly any concerted attack on the farm front to pull it out of the quagmire of sluggish growth. Has the Government has run out of ideas?