The Reserve Bank of India’s latest review of its monetary policy has a clear message: that inflation is still a major concern and that while food inflation is coming down, the prices of essential food items of everyday consumption, at least of the aspirational middle class, such as eggs, fish, meat and milk, remain high and are still increasing. Manufactured goods are also getting costlier, and this is showing no sign of declining as the cost of raw material also keeps rising. The overall inflation figure has come down to 7.5 per cent in November from 8.8 per cent in August. This has provided a breather, but only for a short while. The RBI is very clear on that. True, it did not raise interest rates when it announced its mid-quarter monetary policy on Thursday. In fact, it went a step further and injected around `48,000 crores into the system by reducing the money that commercial banks have to freeze with the RBI (the statutory liquidity ratio) and purchasing government bonds from banks. But the central banker was quick to say that this liberal attitude should not to be interpreted as a shift in its monetary policy stance or that it was comfortable with the inflation figures. It emphasised that inflation was still a major concern — something with which the salaried class as well as the underprivileged will concur.
Inflation is spurred not only from domestic demand but also from global commodity, food, industrial inputs and metal prices — which are all rising for different reasons. Crude oil is the latest to hit the roof — at nearly $100 a barrel, it is threatening to disrupt several major economies. In India, the government has already raised the price of petrol this week, for the second time in a few months, and there is talk of an imminent rise in diesel prices as well. It should be remembered, though, that a hike in diesel prices will push up inflation across the board once again. Diesel is used across the board — from cars, buses and trucks to farmers’ water pumps and fishermen’s boat engines. The government is inching towards pushing up diesel prices on the grounds that the oil marketing companies will otherwise not be able to bear the burden of rising crude prices much longer. Also, even more important, with one of the major oil companies planning to tap the capital market in the not too distant future, the government has to show investors it is decontrolling diesel prices so there won’t me too much damage to the company’s bottomline.
Minister of state for environment and forests Jairam Ramesh tried to pave the way for a diesel hike by asking why the government should subsides diesel for the owners of BMWs and Mercedes luxury cars and SUVs. A good question. But one cannot throw the baby out with the bathwater, and the owners of these fancy cars are a minuscule lot compared to the crores of Indians who use diesel. If Mr Ramesh and his government really want to adopt differential pricing for diesel, they should carefully think about its implementation — and find really innovative and ingenious ways! Expecting the filling station assistant to do its job would really be opening a nice new fat window of corruption. The lessons learnt in kerosene distribution should not be lost, particularly by a government already bogged down with allegations of corruption on various fronts.
Having said all that, the real challenge before the government is to increase the country’s food supply. Till now the agriculture ministry has come out with any concrete plans in this regard or told the people how and to what extent it will increase both the production of foodgrain and its availability in our marketplaces.