Business Daily from THE HINDU group of publications
Monday, Mar 31, 2008
ePaper | Mobile/PDA Version
Business Daily from THE HINDU group of publications Monday, Mar 31, 2008 ePaper | Mobile/PDA Version |
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Opinion
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Letters Inflation The rise in the inflation rate has made the authorities somewhat panicky. Quick-fix solutions are being advocated in view of the elections in the near term. Due to the inflow of foreign capital, Reserve Money growth during the last 12 months has been a whopping 27.8 per cent, against 24.2 per cent the previous year. M3 has gone up by 21 per cent (22 per cent last year). Non–food credit has increased by 18.4 per cent over the year against 24.2 per cent earlier. The last two trends are indicative of the lagged effects of the past monetary tightening. Measures such as raising the Cash Reserve Ratio and/or interest rate take time for the underlying forces to unwind. In an inflationary situation, an interest rate hike may not be a dampener on sectors where the price elasticities of demand for products are low (for instance, onion in Western India, where it is a must at every meal). No expert talks about this limitation of demand management. Cash Reserve Ratio is a heavy and blunt instrument to attack the problem with but, then, it has to be raised by at least 100 basis points to hurt, given the current level of actual CRR. Exports of some commodities have been banned. Can the country think of banning exports of vegetables and fruits to the Gulf region, where non-resident Indians depend on them? The enduring solution is in assuring the country of adequate supplies of commodities, both through higher production and imports. But it would be odd to think of importing vegetables from abroad. The forex bounty has not helped much in the expeditious import of essential commodities. A. Seshan Mumbai More Stories on : Letters | Economy
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