No quick fix for inflation

Mon, 1 Sep Pre-Open

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Inflation has been like a ghost haunting India's economy over the last few years. More so, the inflation problem couldn't have come at a worst time. The economy has been faltering and business has been down. But the inflation conundrum has severely tied down the Reserve Bank of India's efforts to deal with the problem.

Where otherwise the RBI could have easily used the various monetary policy tools at its disposal to help the economy out of the downturn, unrelenting inflation has precluded the central bank from taking any firm steps in that direction.

The new government at the center has been making some decisive moves to crack down on food inflation. For one, the NDA government recently ordered a crackdown on speculators hoarding onions and potatoes trying to make quick profits from an anticipated sharp rise in their prices. As fears of a drought increased in June this year, the government briskly made a move to prevent a sharp rise on these commodities. In fact, the government also brought onions and potatoes under the Essential Commodities Act thus empowering state governments to impose stock holding limits and take action against speculators. Further, it also imposed minimum export prices on these commodities to discourage their exports and increase domestic supply.

These ad hoc measures may have worked in the short term. However, inflation is a much more deep rooted problem, and thus needs a more deep rooted solution.

One of the biggest issues endemic to our country has been the inefficient 'mandi' based distribution system. This traditional structure and its inefficiencies have facilitated a thriving business for intermediaries, leaving both consumers and farmers short changed. This is the main reason for there being a wide divergence between retail and wholesale prices. In fact, reports estimate that the farmer gets less than a fourth of what the consumer pays!

Add to this high farm to fork losses. The level of wastage is estimated to be as high as 40% in some cases.

If the government intends to provide a lasting and thus sustainable solution to inflation, direct measures to tackle the stumbling farm to fork chain will probably be the best possible place to start. This is an area where results are bound to take long. But at the end of the day, there is only so much one can achieve with quick fixes.