Dehoarding, selective import may help reduce inflation: Kaushik Basu

Measures like de-hoarding and selective import of certain items could help tame the soaring food inflation, said Kaushik Basu, chief economic adviser in the finance ministry.

He also said that mild intervention interest rates could also help contain the inflation.

Basu added some government measures, such as successive stimulus packages, might have fuelled inflation, particularly in the rural areas, and “some other policy” could help improve the situation.

“Inflation is a concern. It is not being fuelled by aggregate excess demand. So there is no need to pull back on aggregate excess demand, which would have caused the growth rate to drop. Inflation will have to be corrected primarily through interventions in the food market... There are concerns about certain hoarding. Certain products can be imported. Huge import intervention is not possible for every product, simply because India is a big country. If you are buying from the global market, there is a limit on how much you can buy. But, it is possible to dampen the inflationary tendency in the food sector through a combination of dehoarding and import interventions.” he said.

On being asked if the Reserve Bank of India (RBI) measures could help reduce inflation, he said: “I think the general view is that in a very mild way you need those kinds of interventions. Right now, you need very sector-specific intervention to correct food price inflation.”

The wholesale food prices touched a 10-year high, with food inflation at 19.95 per cent for the week ended December 5.

Asked if government stimulus might have fuelled food inflation, he said: “ It is possible. I do feel that one of the factors behind inflation is a good intervention — an intervention that gives buying power to the neediest. For instance, through the National Rural Employment Guarantee Act (NREGA). Since poorer people spend a disproportionate amount of money on food, it may not be surprising that, along with this effort to reach out to the poor, we are experiencing the food price inflation. It is one of those troublesome cases where good intervention has a fallout not desirable. So you have to think of some other policy to correct that.”

On GDP growth figures, Basu said 7-7.5 per cent growth was feasible. “I think 7-7.5 per cent GDP growth is pretty achievable because growth in the last quarter has been 7.9 per cent. It’s higher than what was expected. India seems to be recovering faster from the global economic slowdown than most other nations. With 7.9 per cent growth in the last quarter, 7.5 per cent for the current financial year is entirely achievable,” he said.

He, however, said RBI measures should not dampen the growth prospects. He also felt, cutting down bureaucratic costs could help the economy.

“Cutting red tape is a long-run measure. I personally believe, that needs some restructuring. Government structures have to be rethought. I plan to work on that and think cutting down on bureaucratic costs can have huge multiplier effect on the economy. But that is not something that can be done through one announcement. It will need stock-taking of how bureaucratic decisions are made,” Basu said.