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Rising Inflation

Rising Inflation

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Published by GRK Murty
Rising Inflation, GRK Murty, Karpuramanjari, Onion Prices in India
Rising Inflation, GRK Murty, Karpuramanjari, Onion Prices in India

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Published by: GRK Murty on Feb 16, 2011
Copyright:Attribution Non-commercial


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Rising Inflation:A Timely Warning to Address Structural Elements
GRK Murty
All of a sudden, Indian economy finds itself in a quandary: on the onehand, the rising inflation is already hovering around 7% and threateningto shoot up with the high rise in the prices of vegetables, fruits andonions (around 82%), calling for demand-side checks
obviously,reining in of money circulation that is currently growing at 15% year-on-year, which is of course, growing at a pace lower than the nominalgrowth rate of the economy
and on the other hand, slowing down of industrial production to an 18-month low of 2.7% in November that isdemanding pump priming the economy to maintain growth momentumat or around 8-9%, plus the rising concern at the mounting subsidy billsand the resulting widening fiscal deficit. And, it is the balancing of thesecounter-demands that is today challenging the wit of the governmentand its policy makers.Amongst these growth constraints, it is the rising food inflation that isdriving everyone, both the consumer and the government, crazy. Thesteep rise of 59% in vegetable prices pushed the food price index to awhopping 18.32%. The rise in inflation is, of course, not confined toagricultural products alone; it even spread to mineral and petrol priceswhich have gone up by 30.6% and 25% respectively. Nonetheless, asthe food articles have a weight of 14.34% in the overall wholesale priceindex, any further rise in them is sure to upset the inflation estimates.
Incidentally, global food prices too have gone up by 30% over the lastyear, mostly due to the fall in production, which again is the outcomeof changing weather, diversion of land use from food grain productionto biofuel production, etc., and this in itself is a sure pointer to what isin store for the future.Whilst on this, it is essential to bear in mind what the expertcommittee set up under the chairmanship of Rangarajan to examinethe implications of the proposal of the National Advisory Council
thatproposed legal entitlement to subs
idized food grains to both ‘priority’and ‘general’ households, covering 72% of population under the first
phase starting from 2011-12, and 75% in the second phase in 2013-14
has got to say. It opined that the recommendations of the NAC
need to be ‘calibrated’: one, owing to non
-availability of food grain;two, the potential of such large procurement (63.98 million tons in thefirst phase and 73.98 million tons in the second phase) being prettyhigh to distort the open market food prices, that too, when all thisrequirement has to be necessarily sourced from the domesticproduction, not through imports as it would be much more costlier and
undependable; and three, it entails ‘large subsidy implications’ that can
stretch to anywhere around Rs 85,584 cr under the first phase and Rs92,060 cr under the final phase.

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