Letters: RBI & inflation

The Reserve Bank of India (RBI) has said it would try to contain the annual inflation rate to five per cent by March 2014, using all the instruments at its command. It's not clear how it can accomplish this. It has itself pointed out on several occasions in the past how it is in a bind in matters of inflation when supportive action from government is required.

I have in the past argued in this newspaper that what the country faces is inertial inflation. It refers to a situation when the rate of price increase attains a stable equilibrium, where it remains stuck until a shock is administered to move it to a new position ("India is suffering from inertial inflation", December 10). I had cited high support prices for agricultural commodities, periodical wage increases and the RBI's declaration of an acceptable inflation rate as some of the factors that maintain the inertial equilibrium.

I suggested there could be a shock on the supply side to move the equilibrium to a lower level by undertaking the free distribution of the bulging stocks of rice and wheat with government. Now the proposal to cover a large proportion of the population under the food security scheme is a welcome move because the sale of important cereals under the public distribution system at what amounts to throwaway prices will shock the economy into a lower equilibrium of inflation.

But under the present conditions of the functioning of Parliament, will the relative Bill be passed and implemented before the end of the year? Administration is the Achilles' heel of our development projects. Will the food security system work better?

A Seshan, Mumbai

Letters can be mailed, faxed or e-mailed to:
The Editor, Business Standard
Nehru House, 4 Bahadur Shah Zafar Marg
New Delhi 110 002
Fax: (011) 23720201
E-mail: letters@bsmail.in
All letters must have a postal address and telephone number