Thursday, May 8, 2008

INFLATION AND PRICE

The whole sale price index in India has increased by 7.4% or exceeded it within a very short span of time. What does it mean? Is it due to inflation or there is something else. The price of rice, wheat, edible oil , vegetables, chicken , mutton besides steel and cement have touched the sky. Rein the spiraling price seems difficult for the government. Though some measures like hiking the cash reserve ratio that means withdrawing the liquid funds from the market through banking system by central bank at the behest of the government is being taken. How far they are going to check the price rise? Or allowing imports of essential commodities like edible oil, banning export of rice to check the short fall; are certain to bring some cooling effect in the market. But it is not likely to take back the price as were a before six months ago.

Let us consider these facts. The price rise of food stuffs is currently plaguing the world. The Wall Mart in US , for the first time rationing the sale of rice. In UK the price of Basmati rice is so high that even it is being discussed in British Parliament to take up the matter withdrawing higher tax by European Union on rice. This has made it difficult for restaurant and “take aways “to survive. In Japan the shortage of butter is so high that they too are considering rationing the item. What is this all about? In fact the price of fuel has touched all time high. The OPEC has refused to buzz to global appeal to raise the production. The trouble in Nigeria is disturbing their oil production and so with Iran for their nook crisis. Iraq`s oil well are yet to achieve the level of production what was during Saddam`s rule. To cap it all the free fall dollars; aggravating the problem as till now it is main currency for global trading. The rise in price of fossil fuel resulted in rise of all other commodities globally in tandem with it. Recent spate of using bio-fuel and emphasizing the production for that; the lands what was producing food stuffs are being used for producing bio-fuel`s green inputs. Thus diminishing the production of rice, wheat or pulses all over the world; it abets the price rise. At the same time, cutting down the dependency and import bill on fossil fuel; it abates the pollution and global warming. The poor and middle class are caught between the devil and blue sea!
The central bank`s step to raise the cash to reserve ratio, would reduce the bank credit for industries. It will limit the industrial production thus impeding the growth. This may spell harm for the economy. But right now the government`s main concern is to offer relief to mass. But here too, in India the per capita production of agricultural stuffs between 1990-2007 has been reduced by 0.7%. At the same time the cereals stored in government’s godown as buffer stock have been spoilt for lack of proper keeping and whatever was saved they have been sold off. The situation is grim. The export of rice being banned and import duty on edible oil has been reduced , to check the price of indigenous edible oil. The Prime Minister appealed to the major steel makers to cut down the price, they have agreed putting some terms for consideration. Let us see the result, which is not likely to show-up before three months or more.

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