Spouting inanities on inflation

Speaking at a function to felicitate the Chairman of the Prime Minister's Economic Advisory Council, Dr C. Rangarajan, the Home Minister, Mr P.Chidambaram, came out with home truths that are seldom expressed in public. Admitting that the Government was as much at a loss as the lay public as regards the phenomenon of rising prices, he said: “I am not sure whether we understand all the factors that contribute to price rise, nor am I sure whether we have at our hand all the tools to control inflation….At least in the case of food inflation, I have not heard anyone arguing convincingly that we have all the tools to control food inflation.”

At long last, someone in the higher reaches of the Government has had the candour to point out that the emperor has no clothes. Mr Chidambaram has said nothing more than what we, the people, in our hearts and minds, had long suspected. That he chose to do so in the presence of Dr Rangarajan and the Chief Economic Adviser, Dr Kaushik Basu, who are considered the country's economic czars, tells its own tale.

The message clearly is that all the paraphernalia of the panels of experts, think-tanks and professional statutory bodies such as the Reserve Bank of India (RBI) are playing blind man's buff with inflation. To know how, let us savour some patent inanities uttered by both Drs Rangarajan and Kaushik Basu as reported in the Business Line edition of December 8.

Take, for starters, this pronouncement of Dr Rangarajan about the RBI having to hike interest rates if price rise persists: “The rate hike will be determined by the RBI taking into account the behaviour of prices during January. We still have three weeks to go. If the inflation rate comes down significantly, then there may not be any need for action but on the other hand, if inflation remains sticky then action will be required…If (primary article/food inflation) persists then there will be some reflection in other prices.”

Soothsaying

Honestly, there is nothing in these observations that is so very profound that they could not have come from a high school student. They do not make us any wiser than before as to the exact point at which the coming down of inflation can be deemed ‘significant', and how sticky is sticky. Nor is the tendency of inflation spreading from food and primary articles to other sectors so very stunningly novel that we really need to have someone on a lofty pedestal tell us that.

Then, there is the common weakness of our economic oracles to indulge in soothsaying, which no one can contradict or verify. Dr Rangarajan is particularly given to it. His latest prediction is that inflation ‘is likely to be' around 7 percent by December-end and between 6 and 6.5 per cent by March-end.

I would strongly urge the RBI, the Council of Economic Advisers and the Planning Commission to publish periodically in the media a chart juxtaposing their predictions and the actuals.

I did a comparison, on my own, some three years or so ago, and found the predictions of our experts to be wide of the mark.

Dr Rangarajan hits the bull's eye, though, when he forecasts an improvement in the liquidity situation in January-March, following a rise in Government expenditure.

That is the quarter in which all departments of Central and State Governments all over the country are hell-bent on spending the budget allotments at breakneck speed, and if that doesn't drown the landscape in liquidity, nothing else will!

Dr Kaushik has not lagged behind Dr Rangarajan in his amazing grasp of the obvious. His surmise is that the rise in vegetable prices could be due to traders' cartels.

Listening to such inanities, a lay person may well pat himself on his back that his expertise is every whit on par with that of top-notch experts!

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