Monday, December 16, 2013

Time for RBI to have a different approach to tame inflation

Dr.T.V.Gopalakrishnan
This rise in inflation index is a clear indication that it is interest rate insensitive and RBI cannot do anything to contain it. The measures have to come from Central and State Governments after diagnosing the real cause for persisting inflation.Monsoon has blessed the nation and agricultural production seems to have augmented. Even then there are no signs of inflation coming down.The causes for persisting inflation can be found in increased circulation of black money, high level of corruption at various levels of procurement, storage, marketing and distribution. Further,the frequent increases of fuel costs which have a direct bearing on movement of essential goods also cause high inflation. Various types of taxes and greedy pricing of goods under the shelter that 'no one can or no one is there to question come what may' can cause high inflation.Since this problem of inflation has been persisting for a few years, it needs to be seriously approached coordinating the activities of all agencies involved in food products production and their logical distribution cutting all undesirable costs in between. No doubt the Local Boards of the Reserve Bank which is not as effective as it can in their functioning can do a lot in coordinating the state level functionaries connected with agricultural production, storage, marketing and distribution. The NABARD also has to revisit its role in the area of agriculture and rural development and bring out some solid policy changes to tackle inflation problem from other than hiking Policy rates. Time to have an out of box thinking on the subject as there is neither growth nor price stability in the economy as of now. It cannot go on like this for ever.RBI's traditional approach to tame inflation will not be of much use.

 (This comment is in response to the news report'All eyes on RBI as inflation hits 14-month high, food prices hurt' that appeared in Business Standard dated 16/12/13).

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