Monday, December 21, 2009


The RBI is now in between two horns of a dilemma. It needs to decide whether growth is important or the tackling of inflation. The month of November has given sleepless night to both finance Ministry as well as RBI.After a stable October it was found that inflation has jumped up and it become 4.78%.The RBI has viewed the position seriously and is getting ready to take control of the situation. But how much monetary measures would be able to help in-case of such massive inflation. In fact much more fiscal measures would be required to chain in such unbridled inflation.
The finance Minister again stated that"there is inflationary pressure on food items>it is a matter of concern"The central government for the first time recommended the state Government to ensure that the public distribution system provides food grains at controlle3d rates to the poor people.In our column it was recommended that not only price of wheat and rice the price of vegetable and fish sould be chained in by state government.The food price index has gone up by16.71 percent during the month compared to last year. It is time to control inflation on food products especially before it gets our of control. A public outcry may develop n case prices don't go down during festive month of January. It is understood that RBI is set to issue a float rater bond shortly,after a gap of four years.according to informed source this is an indication that interest rates will rise sooner rather than later.

It is also a fact the prices of manufactured goods have also gone up as economic activities have gone up.The government is concerned of the inflation yet the Finance secretary said"it is not as if we are taken by surprise or there is any cause for any special emergency action",added Mr. Chawla , the finance secretary.

We however donot agree with the contention of the Finance secretary.We feel RBI would tighten key interest rates since the central Bank has revised the inflation forecast to 6.5% by ensuing march. But measures taken by central Bank would not be able to contain the inflation unless fiscal measures are taken. The availability of food products at a reasonable cost would be most important. how would that be possible?

The availability of food product has become world wide problem .Hence import of food product would not be easy at all. The government should have taken timely steps in allowing corporate sector to get into agriculture in collaboration with landlords and cultivators as their partners. This is measures were discussed in our column months earlier number of times.
Despite recommendations of Prime Minister's advisers most of states have not taken timely steps in this regards perhaps due to socio- political compulsion. This apathy of state Government would prove to be a costly mistake, now.
In the meantime, inflation more than trebled to 4.78 per cent during November on account of rising prices of food items like potato, sugar and pulses, and may prompt the Reserve Bank to squeeze money supply to tame price rise.
The wholesale price-based inflation jumped to nearly 5 per cent from 1.34 per cent in October, according to the monthly inflation data released recently.
Attributing rising prices to supply side constraints, Suresh Tendulkar, former chairman of the Prime Minister's Economic Advisory Council (PMEAC), said the RBI could take steps to withdraw liquidity to tame rising prices. But the apex bank is slated to announce review of its annual credit policy next month.

The monthly data, which was released by the government for the second time, shows that potato prices have surged by a whooping 141 per cent during the past eight months, followed by sugar 37 per cent, pulses 32 per cent and onion 20 per cent.
On the other hand, minerals, edible oils and leather products have become cheaper since March 2009.
The international raw material prices are rising so domestic prices are also seeing a movement upward. it is imperative now that the government needs to manage supply shortages.
The central bank has been increasing money supply for industry to tide over the global financial crisis.
The rising prices are an issue of concern for the government as a worried Congress President Sonia Gandhi had earlier said during the week that "price rise of essential commodities continues to be a matter of highest concern to us."
Among the manufactured products, textiles rose by 1.4 per cent, paper and paper products by 0.1 per cent, while chemical and chemical products increased by 0.1 per cent.
Commenting on the price rise Yes Bank's chief economist Suhubhda Rao said, "a sharper rise in manufacturing clearly indicates that the pricing power is gradually returning as the broad group within manufacturing products have registered month-on-month increase in the index numbers."
Rao added that firming inflation will be on the RBI radar where the CRR could be hiked in December by 25-50 basis points.
The new year would not become a great year initially but from the month os March things would start happening. The new financial year may usher in a stabler economy so far as India ,china and Brazil is concerned.The share market is expected to boom despite inflation and despite higher rate of interest to be fixed by RBI. USA would not increase the interest as the economy would take time to revive.Citibank has returned back government's money as it has become self sufficient . Yet the condition of many banks are still in weak.Recently the President of America has appealed to bankers to distribute more money to business sector especially medium scale industries continuously. In India a similar type of help could be organized for development of micro sector and for modernization of agriculture.We have been recommending through our column to state government to allow entry of corporate sector into the field of agriculture.This would be a great step.Always Assam need not follow other agriculturally vibrant states. Sometime it can lead the country into a new agricultural development through introduction corporate sector as the prime mover in joint sector.This was what has been done in China with amazing results. Would Assam Government think it over soon?



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