The balmy scenes in the floats of government outfits and several states in Wednesday’s Republic Day parade, as well as the colour, pageantry and firepower projected by marching contingents and mechanised units of the armed forces, presented a picture of a confident nation at peace with itself — in stark contrast to our everyday reality: where citizens are forced to live with viruses like inflation, corruption and social unrest. Was it because of this that despite the impressive display rolling before him, culminating in an awesome Air Force flypast, the Prime Minister chose to maintain a stern demeanour all through the morning on New Delhi’s Rajpath? And unless the government gets its act together, and is a whole lot more proactive, most of these viruses won’t go away in a hurry.
On Tuesday, the eve of Republic Day, the governor of the Reserve Bank, Dr D. Subbarao, sent out a clear warning: inflation was here to stay due to a variety of factors, both domestic and global. His prescription for controlling inflation — raising interest rates by a mere quarter per cent — has come in for much criticism from economists who feel that the unabated inflation, which worsened in December, warranted a much bigger rate hike to signal that easy credit will not be tolerated any longer. Credit or loans by banks has grown faster than what the RBI projected, while growth in deposits has slowed. Dr Subbarao felt anything over a quarter per cent hike would limit his leeway in case inflation remains stubbornly high in the coming months. The RBI’s objective is limited to curbing inflation, which is spilling over from food to manufacturing. It is well known that monetary tools for controlling inflation are limited when it is caused mainly due to high food prices — particularly of items of daily consumption such as fruits, vegetables, milk, eggs, fish, etc. Inflation is also fuelled by commodity prices — mostly determined globally. The RBI chief stressed the need for “rapid action” to increase the output of several products whose demand is rising due to changing consumption patterns, reflecting increasing incomes. The government would do well to heed Dr Subbarao’s warning: unless meaningful output-enhancing measures are taken, the risk of food inflation getting entrenched looms large. This threatens both the current growth momentum and the realisation of its benefits for a large number of households.
The government should realise that food imports are not an easy option, given that global food prices have risen by 25 per cent in December, according to FAO estimates. The price of edible oils — which India imports in a big way — has risen 55 per cent, cereals 39 per cent and sugar 19 per cent. A top FAO official noted in Davos earlier this week that the current world food crisis could be ascribed to falling investments in agriculture — from 19 per cent in 1980 to a mere three per cent in 2006. Much of the rise in food and commodity prices can also be blamed on speculation — it would be in India’s interest to strongly support French President Nicolas Sarkozy’s proposal to curb speculation in all commodities. The FAO official said he felt prices could get out of hand unless all futures markets were regulated — in fact he warned of the possibility of food riots like those seen in 2007-08. The FAO has put regulation of futures markets on Davos’ agenda — but it is accorded a very low priority by the rich who tend to dominate the World Economic Forum there. For the Manmohan Singh government in India, meanwhile, time may be running out — the importance of finding an urgent solution to the food crisis simply cannot be overestimated.