Various reasons have been offered for high inflation in India. Let me take up each of them and demolish it.
It is being said that the inflation in India is the direct result of the Global Recession, which is false. The inflation in India is linked to high food prices. The food prices in the USA have been falling as a result of the Global Recession; the USA is the country which ought to have been affected the most because of the Global Recession. However, I do admit that the food inflation has been rising in the developing world, but that is because of something else, not the Global Recession.
Higher Disposable Incomes of the Farmers
It is being said that the farmers have been paid high prices for their produce, therefore they are boosting demand leading to inflation. This is ridiculous! First and foremost, the farmers at large have not become rich: It is only the rich farmer who have become richer: the poor farmer have become even poorer. Moreover, the food demand is highly inelastic, which means that the changes in prices have a relatively small effect on the quantity of goods demanded, and vice versa. Also, it means that the absolute demand for the food products remain same even if there are higher disposable incomes of the farmers. The extra income would be utilized in other expenditures, not food. I would say that the said argument of the higher disposable incomes of the farmers is corrupt, and the politicians propounding this argument should be sent to jail.
This is something which could have been considered but only if it was true. Mr. Sharad Pawar has ruined this country. I have no doubt that he is single-handedly responsible for the present artificial shortage of the food products in India. The media and the activists have been crying foul for so many months about the putrefying food grains in the ill-managed warehouses. Even the Judiciary had to intervene, but this guy has cared less. He was audacious enough to say that the advice of the Judiciary to give such food grains free to the poor is impractical. Recently, when the onion prices rose and the Government imported onions from Pakistan, the imported onions were never put into the supply chain and were left to decay in the port. Who is to be blamed for this?
So, the reasons have to be found elsewhere. I have found the reason in the below quoted statement of the PM in his Q&A session with the editors:
If we were concerned with only curbing inflation I think we could have done it by pursuing tighter monetary policies, we could have brought about a situation where price rise could be moderated. But if in the process, growth process gets hurt..
Let’s analyse the statement of the PM. He says he is concerned not only about inflation but also growth. In other words, he has chosen growth over inflation and has not tightened the monetary policy. So, the questions: Was the growth necessary? and, for whom? As a captain of the team, when I know that some of my team mates don’t have food to eat, yet others want to invest in stock markets, I will buy food with whatever money I have got and will not invest even a penny in stock markets because then my healthy team would grow its own crop. However, what the PM has done is just the opposite. He has given money to the industry to stimulate the so-called growth, which has naturally led to the bull run in the stock markets in India; in other words, not only the government money but also that of many poor individual investors has gone into the stock markets. When the food prices were rising by 20% YoY, the stock market rose even better by more than 100% in just two years. But, where did all the money go? Well, all the money has still not gone, but it is fast going out via the reverse FII route; a stock market scam is all that is required. And, where is the money going? No prizes for guessing that! It is going to those who control the flow of capital in this world; that is, to those who ought to have suffered the most because of the Global Recession but are still in living in AC comfort. The food price inflation in the developing world is the biggest fraud that the developed world is playing upon the developing world. And, if it continues in a similar manner, it might well grow bigger than colonization, except that the imperialists this time will not wear red coats, but blue and grey coats; and there would be no Gandhi to cover the semi-naked women because all would be on mobile/camera even before the clothes would go off.
©2011 Ankur Mutreja