Inflation has hit an all time high (again?). Inflation is very closely linked with the prices of essential commodities which has rosen sharply worldwide. Restricting inflation has become the matter of most important priority. First things first , other things including (growth) can come later- seems to be the mood of the government. Faced with a difficult task of checking price rise, attributed to global hardening trend, Finance Minister P Chidambaram had said that tackling inflation would be the top priority of the government even if economic growth rate has to be sacrificed by a few percentage points.
Inflation is almost cancerous in today's economic scenario, that it might seem too much to dream of a decent growth. After 4 long years of the 9% figure of GDP growth, things seem bleak. Morgan Stanley has estimated a growth of 7.5% for India at the most. The 9% dream(Read: Krishna Prashanth: An Illusion called 9% )is finally about to break.
A small analysis of the instruments taken to check the inflation shows that most of these are deterimental to growth. The government had reduced import duty on edible oils, including palm oil from 45 per cent to 20 per cent. Besides, stringent conditions have been imposed on exports of non-Basmati rice while export incentives on 40 to 50 items, including steel and chemical products have been withdrawn.
It is also important to remember that rising commodity prices for the consumer, is because we have to import them, and that we are not self sufficient. It is equally important to improve the efficiency of our local production of these essential commodities, which means better farming and distribution techniques. Industrial farms may be a viable solution. It is essential that the government reduce subsidy to farmers who are not (or who cannot be) efficient!
This is difficult in India's populist government, more so because with the growing population, and farmers traditionally dividing their farm lands to accomodate their sons. This means productive fertile land owned by a single landlord is consistently reducing in area. Studies however show that farming is more efficient in larger areas of land than smaller chunks !
This means farms cannot get divided. One way in which the governement can acheive this is to bar inefficeient lands from all subsidies. This will ensure that farms dont get divided below their minimum area to maintain efficiency. Besides this the government should increase subsidies to farmers resorting to technology in their farming. Also efficient distribution systems, that leave everybody --the farmer, the distributor and the consumer--in a win win situation should be encouraged and rewarded.
Uniform subsidies, or even loan waivers cant help.(Read the post on kplogs : Krishna Prashanth: Loan Waiver -A bad precedent?) What we need is the simple rule of nature. Survival of the fittest farmer!