THE MAGIC WAND TO CONTROL INFLATION IS HERE

Let me start with a wonderful story. G R Gopinath, Founder – Air Deccan was chatting with his farmers about what crops they had grown and one of them said that he had grown onions along with many others in the same village. They continued further saying that there was a mad rush to grow onions because the few who had grown it the previous year had reaped windfall profits.

Now all the farmers who grew onions hired a truck each and took their onion crop to the weekly farmers’ market in a district called Hassan in Karnataka. They arrived by 4 AM. Within an hour, there were many hundreds of trucks, laden with onions. Soon after they realised that onions prices were crashing, and after doing the math they came to know that the amount they would receive for their stock of onions was insufficient to pay for even the truck fare.

Before dawn they wrapped themselves in blanket and abandoned their produce in the trucks and escaped to their village. This is not a melodrama. This is a true incident.

I have kept this post as simple as possible focussing on brevity and objectivity.

There are 3 ways in which a government can control inflation namely:

FISCAL POLICY

MONETARY POLICY, and

TRADE POLICY

Inflation in India is related only to food inflation which can be controlled through fiscal policy. Yes there should be parity between fiscal monetary and trade policies but the lion’s share what we call should be of fiscal policy. Therefore, in this blogpost I have focussed only on Fiscal policy rather than on other two policies.

Coming back to our story…

1. Now you might be thinking that if there are surplus produce then why do prices of onions sky-rockets always? Even though there is surplus supply compared to demand. Here are the reasons:-

Because whenever there is surplus in India, the stock of produce simply rots. Why?

1. There’s no efficient supply chain of logistics and cold storage, to carry it from the farm to shop shelves and super-markets.

This incontrovertibly leads to hoarding of goods, black marketing and golden opportunity for exploiters to exploit the situation.

Today 85% of who grow cereals, pulses, oil seeds, and vegetables under rain-fed conditions. Perennial irrigation covers only 17% of farms, growing rice, wheat, sugarcane and other crops. Therefore, in huge numbers, farmers often abandon their crops

Therefore in view of the above problems I will provide one solution, of the many possible remedies, which is required to be implemented at the earliest.

One of the first things to do is to get power for agriculture. Today, this is non-existent in most parts of India. Farmers need power most when there is scarcity of rain – For irrigational purposes. Today, without electricity, farmers run pumps using diesel generators, which produce electricity priced at Rs 18 per unit, and the normal industry gets state electricity board (SEB) power at Rs 5 per unit. If the farmers get SEB power, they will willingly pay a price for it.

Moreover, if we can supplement this with better roads and a multi-modal transport system then it will be like cherry on a cake.

This brings me to the end of this blog.

Next is: Empowering India: Call for Manufacturing Boost: Removing Bottlenecks