This refers to J Mehra’s article “We are paying the price for panic” (July 20). The piece gave a quick review of what is wrong with the policy approach to inflation and the tools that are being applied to tame it.
With regard to food inflation, a long-term solution may have to look at improving and increasing production by ensuring remunerative farm gate prices, estimating in advance the state-wise requirement for consumption and increasing local production.
About a year ago, the Reserve Bank of India’s (RBI’s) governor, D Subbarao, had stressed on the need for synchronising monetary and fiscal policies. He also mentioned that in a poor country like India, RBI has many responsibilities and it could not focus only on inflation. This implied that the governor expected supportive measures from those in charge of the fiscal policy. The statement should have also been seen as an indirect admission of the limitations of the central bank’s policies in an environment influenced by external compulsions. If the governor is forced to go ahead with continuous rate hikes, it only shows the helplessness of a central bank that is not getting the necessary policy support from the Centre.
The problem gets compounded when experts working for different organisations and agencies take the debate to various categories of inflation, the methods of calculating inflation and how inflation (the consumer price index or wholesale price index inflation, for instance) affects different sectors and income-groups. All this confusion then gets reflected in policy formulation.
M G Warrier, Mumbai
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