The present government has evolved a unique method to fight inflation and that is making statements - 'The inflation may come down by ...' and I/We hope that inflation will go down...
While Reserve Bank of India will take action because IIP numbers and other data shows inflation is going up due to 'demand' side and not due to supply constraints.
Earlier, Food inflation was worry where government cited various reasons however the basic reason was Minimum Support Price for wheat and rice. The government has doubled these prices in last 5 years. The question needs to be asked is how long our government can afford to increase minimum support price to benefit farmers and then looking towards RBI to cool down inflation? This is one more subsidy where corporate sector ends up paying higher prices for its loans.
The government has to decide who are its first customers? Farmers or people living below the poverty lines (government pays farmers higher price to procure wheat and rice and then subsidizes the same to distribute among below the poverty line people) or both? The government can not sustain this revolving door game where it keeps paying subsidy in various forms to both farmers and BPL.
The correct strategy will be to declare farming as business with proper incentive (taking leaf from China of 1979) and improving infrastructure to improve penetration and reach of grain markets so that people decide fair rates. India needs to move faster on agriculture and infrastructure reforms and needs a full time agriculture minister and who is not an affected party due to changes in government policy.
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