Food inflation makes it even more difficult to rescue the economy from its image crisis
A 61 per cent spurt in the prices of vegetables and fresh produce,owing to a contraction in supply following unseasonal rains,has scripted the latest scene in an unrelenting inflationary crisis. Vegetable prices always rise with the onset of summer because of lower crop yields and increased wastage in the supply chain. Incidentally,one of the expected spinoffs of FDI in retail is investment in better cold-chain management,which would reduce the effect of weather on the price of fresh produce. But the present crisis has no immediate solution,since cold chains cannot be installed overnight and the falling value of the rupee would make imports expensive.
The weather gods have delivered the vegetable chop to the jugular at the worst possible time,when external inflationary forces are at work,the economy is slumping and the government,which is in a policy freeze,is really low on options. Last month,the RBI slashed the repo rate by 0.5 percentage points and now has very little room to manoeuvre. Industrial production is falling,pruning jobs and purchasing power. The prices of products which are not 100 per cent indigenous will soon rise because the dollar has become more expensive. Besides,a fuel price hike is expected after this session of Parliament,which would send prices spiralling again. Meanwhile,international credit-rating agencies are industriously downgrading India in general and its financial institutions in particular. Standard and Poors has menaced the national economy and Moodys downgraded LIC and three major banks ICICI,HDFC and Axis.
While the government can do very little to ease the current crisis in food inflation,it must apply its mind to the general problem unacceptable year-on-year increases in food prices. And to rescue the economy from a general image crisis,this vegetative government has to show some imagination,if not animal spirits.