The Reserve Bank of India has done well to spell out in clear terms its concern over inflation continuing to persist across the country. In its second-quarter monetary policy review of 2010-11, RBI governor D. Subbarao noted that headline inflation was significantly above its medium-term trend and well above the RBI’s comfort zone. Despite the good monsoon in most of the country, the expected post-monsoon moderation had remained “persistently elevated” for over a year — which he attributed to demand-supply mismatches in several commodities. India has the highest inflation among developed and developing nations: it was 9.8 per cent in September. Compare this to China’s three per cent, Russia’s seven per cent and Indonesia’s 5.8 per cent. Even Brazil has recorded just 4.7 per cent. Elsewhere, inflation levels range between 1.1 per cent and three per cent. So why is India unable to bring it down to 5.5 per cent?
Tuesday is the sixth time the RBI has raised policy rates this year to tame inflation, but it rages undeterred. The central bank optimistically pegged the wholesale price index (WPI) inflation for March 2011 at 5.5 per cent. But the real inflation story is not in these figures, it is in the people it affects — particularly the vast majority of Indians who live below the poverty line or just above it. It also affects workers in the unorganised sector who don’t have the luxury of dearness allowances and other such cushions. While the WPI inflation rate hovers around nine per cent, the consumer price index is in double digits — and that is what hits the aam aadmi most. Food items, particularly protein segments, register the highest increase. The hike in the price of protein-based foodstuff like pulses, milk, eggs, meat and fish was as high as 34 per cent in May 2010, and at 23.9 per cent in September. Cereal, fruit and vegetable prices came down to an extent due to the good monsoon, but overall the prices are still very high.
All this points to a major weakness: the government’s inability to tackle food production and management despite knowing that demand is growing along with growth in the economy. The agriculture minister keeps saying that people are eating more chapatis and more food than earlier, so what is his ministry doing to increase supply? RBI figures released on Tuesday shockingly reveal that despite this year’s abundant and prolonged monsoon, the increase in area coverage in the 2010-11 kharif season was marginal compared to 2008-09. The estimated kharif production in 2010-11 (114.6 million tonnes) is lower than that in 2007-08 (120.9 mt) and 2008-09 (118.1 mt). The demand-supply gap in oilseeds and pulses is also likely to remain, according to the projections. It is also estimated that key food items like fruits and vegetables and protein-based products will remain in short supply due to lower yields and the increase in demand caused by factors like increasing population and changing food habits. The input cost of items like milk, eggs and meat have also contributed to a hike in their prices. As the government is well aware of all this, it could well have taken specific measures to tackle the supply side. This is the government’s job, there is nothing that the RBI can do about it. The mismatch of supply and demand reflects the failure of the agriculture ministry and the department of food and civil supplies. The Planning Commission too is not without blame: what sort of planning was being done by this august body?