Central banks can fight inflation and excess liquidity through raising interest rates and tweaking the cash reserve ratio of the banks. Of course, it would not decimate inflation but it would control it a bit. No such putative mechanism is available with governments with regard to rising food prices. All that prime minister Manmohan Singh could do in the meeting with chief ministers to discuss the burning issue was to explain the phenomenon of inflation in food prices, like a good economist. He said that this was due to failure of last year’s monsoon, because food prices were rising in global markets as well and so on. He said that food grain exports will be banned and imports will be allowed. He assured that there were enough buffer stocks and there is no need for panic. And he urged the chief ministers to strengthen the public distribution system. He has ventured to say that price rise was part of a regular cycle and reminded that it had happened in 1998 as well when the BJP-led NDA was in power. He said that the worst phase of price rise is over. He has also appointed a committee of chief ministers to take the necessary measures.
Interestingly, the prime minister has argued that food prices could be managed better if the retail trade was thrown open. What he has in mind is allowing FDI into retail. Of course, he did not explain how this would help except to suggest that the retailers could be hoarding the stuff and therefore triggering the price spiral because of the sharp discrepancy between the wholesale and retail prices.
The prime minister has just declared his helplessness. While he harangued the chief ministers to take the needed steps, the chief ministers — especially those from states ruled by the BJP — in turn blamed the central government for it. On Thursday, at the party’s working committee meeting, Congress leaders criticised agriculture minister Sharad Pawar. It is no consolation to people who have to bear the brunt of rise in prices either to watch the political blame game or understand the finer points of the lesson in economics that the prime minister had presented. They need relief and there is none on offer. There is something that the central government and the grain merchants need to do together. They should make available the stocks lying with them so that speculation will end. It is not as impractical as it may appear.
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