Editorial 1: How not to tame inflation
Context: Export bans, stocking limits can be counterproductive. India needs to use import policy liberally
Introduction
- The June Consumer Price Index (CPI) inflation figure of 4.8 per cent is discomforting for the RBI as well as the government. Further, the erratic monsoon has raised the risk of inflation. The government has imposed a ban on exports of white rice with the hope of taming cereal inflation. But will the move succeed? Our research says “no”.
Inflation
- Inflation measures the average price change in a basket of commodities and services over time. It refers to the rise in the prices of most goods and services of daily or common use, such as food, clothing, housing, recreation, transport, consumer staples, etc.
Reasons for using such policy measures
- The reason: Policymakers are using instruments of the 1960s. Such bans on exports and strangulation of domestic markets will not be appreciated at all by G20 countries. The rice export ban will hurt the African countries most as rice prices are likely to go up internationally. India is the largest exporter of rice, accounting for almost 40 per cent of the global rice trade.
What it reflects?
- Domestically, it reflects a knee-jerk reaction and a strong pro-consumer bias, which is also anti-farmer. Such export bans on rice and wheat, and stocking limits on wheat also make a mockery of the agri-marketing reforms that the now-withdrawn farm laws were trying to achieve.
- There is no doubt that cereals and products inflation is high at 12.71 per cent. It contributes about 22.8 per cent to CPI inflation, as it has a high weight of 9.7 per cent in the food group in the CPI basket.
- The inflation rate for wheat stands at 12.37 per cent despite the recent ban on exports and the stocking limits on traders and processors. Furthermore, rice inflation stands at 11.78 per cent, and the FCI’s open market operations have elicited a lukewarm response.
- The government is already giving free rice or wheat (5kg/person/month) to more than 800 million people under its PM Garib Kalyan Yojana. One wonders why it has been taken extreme steps such as banning exports or putting stocking limits. These measures betray a sense of panic and indicate the government’s lack of understanding on how to tame inflation in a market economy.
What could be a better way to tame wheat and rice (non-PDS) inflation?
- Reduce the import duty on wheat from 40 per cent to say 10 per cent. And for rice, unload excess stocks in the open market at lower prices than what the FCI has been doing recently.
- There is also a need to revise the weight of food and beverages in the CPI basket — this is outdated and based on the 2011 consumption survey.
- This weight currently is 45.9 per cent, and food alone is 39 per cent. Engel’s law clearly shows us that with rising per capita income, people will spend less on food. Our research suggests that the weight of food and beverages will be around 38 per cent in the CPI basket in 2023 and that of food alone about 33 per cent. With the old weights, we are overestimating CPI inflation, which needs urgent correction.
Tomato Prices
- Another item in June inflation deserves attention. Tomato prices that are bothering the average household currently, show a negative inflation of (-) 34.7 per cent in June 2023.
- It is because last year in June 2022, tomatoes inflation was 158 per cent, and therefore when one compares, year-on-year (YoY) inflation, it turns out to be negative for tomatoes. But month-on-month (MoM) (June over May 2023) basis, inflation is 64.5 per cent for tomatoes.
- Right now, tomatoes have humbled the RBI, yet again. But one must ask for accountability from Operation Green, which was set up to stabilise value chains and prices of tomatoes, onions, and potatoes (TOP).
- Our research shows that while tomato prices may come down in August-September, onion prices are likely to rise. There is no short-term solution, but in the medium term, at least 10 to 15 per cent of these items need to be processed to stabilise their prices.
Conclusion
- To sum up, India can contain CPI inflation within 6 per cent, provided it uses import policy for food products liberally and well in time. Else, don’t be surprised if it breaches the 6 per cent barrier of RBI’s price band in September-October-November.
Editorial 2: It’s about Manipur
Context: Politicians should stop using the sexual assault video to score political points. That adds insult to the state’s many injuries.
Introduction
- Manipur has been on the boil for close to three months: Over a hundred people have been killed and thousands displaced with little hope of returning home. The sexual assault of Kuki-Zomi women on May 4 — an FIR was filed on May 18 — has to be seen in the context of this extended run of violence and the impunity mobs have enjoyed for months.
- The barbarity of the crime — one of the survivors told this newspaper that policemen were present when the incident took place — and its video shook the nation.
Why has the violence continued for so long?
- First, both the state and central governments have failed to restore law and order. In May, more than 30,000 security personnel from paramilitary forces were brought into Manipur. Additional forces were brought in last month. Yet the violence has continued unmitigated.
- Second, the internet ban — including broadband services — imposed in the first week of May has still not been lifted. The government blocked the internet intending to control the spread of fake news and misinformation on social media. But in the long term, it has done worse than good. Without access to the internet to verify facts, the ground has been rife with rumours, hate-mongering, and fake news.
- Third, easy access to arms and ammunition, mostly in the name of self-defence, has further prolonged the conflict. The looting of the government armoury and the unchecked entry of arms from the Myanmar border have ensured that most village volunteer groups are armed. Young men are trained to use guns and build bunkers to protect themselves in the event of any provocation.
Enough suffered
- Ordinary people of both communities have suffered immensely in the last two months. Men and women in areas of conflict have been living in perpetual fear for their lives, land, and properties.
- They have not had a proper night’s sleep or a relaxed meal in over two months. Due to the conflict, they have been unable to cultivate rice, the staple food of the state, in this sowing season. This has created fear of famine next year.
Looking forward
- As Parliament resumes Monday, the nation waits for answers from those in charge in Imphal and in New Delhi. How do they plan to bring the administration back on track, converse with the Opposition and collectively explore ways to bridge the gulf between communities.
- Indeed, the fault-lines in Manipur can set off cracks beyond its borders, as is evident from the reaction in neighbouring Mizoram, where a local outfit has threatened the resident Meitei population. There is also a transnational dimension, as many communities have kinship ties with groups in Myanmar, which is roiled in a conflict of its own.
Conclusion
- In recent years, the Centre has done well to engage better with the region, improve infrastructure, raise hopes of better economic prospects. It should stop using Manipur as a debating point, that complicates the problem, that also adds insult to the state’s many injuries.