Monday, January 17, 2011

Why current inflation is govt policies failure

The food inflation is at its peak today.With food inflation touching 18% mark and prices of all essential food items especially onions touching peak levels.The question hve started arising on people,s mind why inflation is so high eventhough the economy is booming at 8% growth.
The current inflation has hit the backbone of 400 million indian poor who with dere low income are struggling to participate in the food mkt.
I would say dat present inflation is due to mishandling on the part of govt n it could hve been prevented earlier only.Inflation is lyk fever it is not an disease itself but a symptoms of an underlying disease.The right approach is to treat the underlying disease instead of focussing on symptoms.supply bottleneck is the main cause of rising prices.Wen the economy grows at 8% growth rate year after year den all classes of people including poor,middle class n rich will demand more goods&services.Yet the UPA govt has failed to ensure dat the economy can produce and distribute goods& services.Dis is the core cause of inflation.
The slow growth in Infrastructure sector is an indicator of the policy failures dat hve led to inflation.Actually the public investment in infrastructure has declined significantly since the economic reforms becoz of   fiscal consolidation policy of succesive govt,s in power thus infrastructure sector became the easy prey 4 the succesive govt,s to reduce dere expenditure.Better infrastructure can moderate prices rises by connecting the seller n buyer effectively.Eventhough the economy grew at 8% under UPA govt the infrastructure industry grew at 6.7% infact the share has gone down to 5% in mid 2010.
.If rural areas were better connected to each other by good roads,better electricity n cheap transport den the villager can buy the goods with adjacent villages if the goods r cheaper dere.
The govt has failed to enable farmers to participate in india,s growth.the failure to integrate india into single mkt 4 agriculture goods not only contribute to food inflation but undermine the welfare of people as farmer receive only 50 paise for a kilo of tomato while consumer pay rs 20.
It is a matter of basic economics dat wen demand rises faster den supply,prices will rise by neglecting dis basic reality,the UPA govt has created conditions 4 inflation.

Lastly i will tlk abt the role of RBI.The RBI gets away with lots of questionable  policy mking  n dere unwillingness to step us intrest rates to control inflation over the last few months hve been puzzling.At the end of the day inflation is an monetary phenomenon,more den being fiscal.We can push the govt 4 all sorts of reform,but nothin is more neccesary in the short run den an immediate hike in intrest rates.

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