Inflation

I have come across article of Mr. Mahesh Vyas published in
The Times of India on 26.20.2011. There is a parallel article over the same
page title “Balancing Act” I will like to comment over them. I feel that people
do not feel gloom in India as there is no gloom. India at present is having
safe and sound economy except the case of rising inflation.
It seems that the RBI is taking decision on conditions prevalent
today. At present USA has not gone into double and Europe is yet to default so
neither RBI nor the ordinary people in India are feeling any pinch but suppose
the western markets come under pressure. The European states starts defaulting
and USA goes into recession; what contingency plan India has to deal with such
a situation?
The interest rate hike by RBI will ultimately hurt growth
which in terms means lower than anticipated revenue for the government but the
government cannot control its expenses even though it may reduce its revenue.
The policy planner have already promised moon to the people and several states
going under election more soaps will come forward. Where will the money come
for all these plans? The obvious course will be more budget deficit and more loans
by the government which means more inflation and hardened interest rates in
short a vicious circle of interest rates and inflation or simply a interest
rate prices spiral.
There can be an alternate plan of action also in which the
government agencies can make their planning more innovative and bring down
subsidies while increasing coverage of the schemes. Efforts can be made to
secure high rate of growth with low inflation. This can be done by selectively
targeting the commodities subject to huge fluctuation in prices. The growth model
of high growth rate with low inflation will mean more government action. This
will increase the responsibilities of the government.
The food security act and NREGA can be made innovative to
reduce subsidy and increase coverage of the scheme. There will be need to
include trade unions and traders unions to bring in the solutions for averting
major price hikes. The trade unions can also help in this matter as the
commodities market usually employs unorganised labour. The labour unions may like to increase its
membership and the government may like to avail of their services for quick
disposal of essential commodities from one market to another. The unorganised
labour can also act as small vendors and open up kiosks at various places
during shortage of essential commodities. Similarly the traders unions can be
made a party to decision making as the traders knows very well how to take
advantage of a situation therefore they can tell how to tackle the situation.
The FDI in retail and other sectors can help bridge the gap
but cannot replace the conventional methods. The high interest rate will help
generate savings for growth and the government seems to be inclined to find
methods for safe investment of the savings but there will still a need to
increase exports in order to pay for imports. The government infact should
enter into negotiations with the troubled countries to increase exports as well
as imports or simply the stimulate international trade rather than to curtail
it.
I am sure there is a way of low inflation but high growth
rate at least in long and medium term.