The inflation spiral is a chance to fix things - hiking petrol prices, for instance, will promote conservation.
It is difficult to recall now, when prices are in three-digit dollars, but a decade ago, prices were in single digits! Prices of other commodities, including steel, foodgrains and other agricultural produce, have also risen sharply. One result is that inflation, as measured by the Wholesale Price Index (WPI), has gone up to politically unacceptable levels — and this even before the current global crude prices are reflected in the domestic prices of the four most important petro-products.
To be sure, the WPI is not a very good measure of the impact felt by the consumer. For one thing, the base for weights of different products is dated. Second, the WPI does not consider services. It has been reported that a revision of the index is being undertaken and this should help improve the quality of the inferences drawn from changes in the WPI: what is equally needed is a countrywide measure of the Consumer Price Index (CPI). In fact, authorities and central banks in most countries consider CPI as the more relevant measure of price rises. Again, at least some of the central banks monitor "core" inflation, that is, excluding the prices of energy and food. The belief rightly is that these are volatile, and not susceptible to being influenced by monetary policy.
The responses from our authorities to the rising inflation scenario have been predictably dirigisme. Some import duties have been reduced and some exports banned; steel and cement producers have been summoned to Delhi and told to curb price rises. Some alleged "hoarders" of foodgrains have been raided, and there is talk of bringing more commodities under the purview of the Essential Commodities Act. There are predictable calls on the part of the Left in particular to "strengthen" the public distribution system: these have coincided with a report from the Public Accounts Committee evidencing that barely 50 per cent of the grains released under the PDS reach those for whom they are intended. Such administrative/fiscal measures apart, monetary policy has also been used to curb inflation and inflationary expectations. So far, so predictable!
In the whole scenario, there isn't much debate on the broader, long-term perspectives which, to my mind, require us to look at oil and food prices as opportunities rather than problems. These are as follows:
As for food prices, our population is increasing at around 20 mn a year, a rate which agriculture output is not matching. Even globally, population is expected to reach 10 bn by the middle of the century before stabilising. Was Thomas Malthus, the British economist, not wrong but merely a couple of centuries ahead of his times? Again, as standards of living in Asia go up, people would be eating better, and consuming more energy. (A kilo of meat requires nine-ten kilos of grain to be fed to the animal.)
Oil and gas resources too would probably get exhausted some time this century unless huge new finds come up. Environmentally, there is a strong case to strengthen conservation measures, reduce dependence on hydrocarbon energy resources and develop renewable energy technologies, rather than complicate the problem of non-oil energy by ideological and opportunistic opposition to the nuclear pact.
Sixty per cent of the people in rural India (Bharat), where the principal economic activity is agriculture, earn barely 20 per cent of GDP; the 40 per cent in urban India earn 80 per cent—a difference in per capita incomes of six times! This is going to lead to major social instability in the coming decades, and calls for a massive transfer of incomes from India to Bharat, and a huge migration of agricultural labour to manufacturing and services. A rise in agricultural prices is a far more efficient way of improving rural incomes than the much-trumpeted loan write-off which dose not improve agri-economics in any way.
To summarise, there is a case for looking at the current price scenario as also providing opportunities. Surely, letting the market price of crude reflect in the high street prices would spur both conservation and the economics of alternate energy sources? Again, the fast growth of organised retail needs to be looked as an opportunity, to seek the cooperation and the financial and managerial resources of the private sector to improve rural infrastructure like roads, storage facilities, and so on, and reduce the massive wastage of agricultural output. The successful production of the Nano is concrete evidence of our innovative abilities. It is time to get them to focus on energy substitutes and improvement of rural incomes, through a big public private partnership — and the right price signals.
avrajwade@gmail.com |
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