After a long hiatus of over a decade during which the Indian economy has leapt out of the rut of the so-called Hindu rate of growth (3.5 percent per annum) and is growing at the rate of over 8 percent per year, the spectre of inflation has returned to haunt fast-track, shining India. According to the official estimate of the Reserve Bank of India, the wholesale prices index (WPI) has risen by 6.3 percent during the year past, breaching the unofficial barrier of 5 percent. Inevitably that’s not the full story. The wholesale price index as its nomenclature indicates, reflects trade-to-trade price fluctuations. The impact upon consumers of a 6.3 percent rise in the WPI is much more severe. Therefore with elections in several states especially in Uttar Pradesh (pop. 166 million) around the corner, the UPA government has been galvanised into action. The prices of petrol and diesel have been reduced by Rs.2 per litre; the CRR (cash reserve ratio) which commercial banks are obliged to maintain with the RBI, has been raised for the sixth time this year to mop up excess liquidity from within the system, and import duties on wheat and pulses have been abolished. However these and other measures taken by the finance ministry and the RBI while useful, are palliatives of limited value. During the past three years since it was unexpectedly awarded the largest number of seats in Parliament in the general election of 2004, the Congress party at the Centre has missed the opportunity to correct several fundamental distortions of the economy which are the consequence of post-independence India’s disastrous dalliance with Soviet-inspired socialist ideology. The first and foremost of these distortions is the continuous (typically Soviet) neglect of the agriculture sector. The fundamental problem of the nation’s 150 million rural households is the huge variation between farm gate and retail prices of agriculture produce. Which is inevitable given that because of infrastructure deficiencies 40 percent of the country’s annual horticulture produce rots because it can’t get to markets. Moreover because of gobbledegook Marxist economics, the development of a downstream food processing industry which would prevent the massive annual spoilage of agriculture produce, has been consistently prevented by government policy. To all this add acts of commission and omission such as high taxes on petrol and diesel, poor roads, inefficient railways etc and it’s easy to appreciate that the slightest disturbance of a tenuous equilibrium will spark the subterranean fires of inflation built into post-independence India’s irrational economic development model. The original sin of neglect of rural infrastructure which would have prevented mass distress selling of agriculture produce, has been compounded by the murder of rural education which would have given post-independence India’s farmers a half chance to effectively demand justice, equity and a fair share of the gains of economic development. It is these structural deficiencies of the Indian economy which need to be corrected to prevent the subterranean but omnipresent fires of inflation from repeatedly surfacing to consume the poorest and…
