Inflation has become a pervasive problem for all the economies and India is no different. In India, the inflation is breaching the Reserve Bank of India (RBI) inflation target of 2-6 per cent month after month. But with good monsoon approaching us, many economists are hopeful of food inflation coming down. However, contesting these arguments, Ashok Gulati, chair professor for agriculture at ICRIER, says that good monsoon will not have a dramatic impact on the food inflation.
“Overall, the impact would be marginal. There are certain things driving up the food inflation, especially imports. Currently, there is 17 per cent inflation in edible oils, the good rainfall and monsoon is not going to affect it because 60 per cent of our edible oil is imported. That depends upon the global prices and the import duty, you have reduced the duty on the palm oil and sunflowers oil, soya oil but the duty on mustard oil, ground nut and cotton seeds are still 38.5 per cent. That inflation remains sticky and it will not come down,” Gulati explained.
Throwing light on the government’s decision to ban wheat exports, he says, “It’s totally irrational, it’s a knee jerk reaction. You are trying to control wheat exports, but then atta exports will zoom up so what you will do. You are trying to put pressure down on one side. Best trade policy is to keep border open and lower the import duties across the board because all the prices have gone up, almost every commodity,” Gulati added. He said that mustard oil in one year has gone up by 73 per cent and our duty has remained 49 per cent, 50 per cent for the refined oil. He calls this decision as “sheer foolishness.”
He explains that in these kinds of situation the government should have cut import duties across the board.
“You have to go counter cyclical to the global prices, if global prices have gone up by 70 per cent then your duty should have come down to zero per cent. Its international trade policy that when the prices are down you raise import duty and when prices are up you cut import duty,” Gulati said.
According to him, If the economy will be managed well then the inflation can come down to 6.5 per cent otherwise average is going to be 7.5 per cent especially food prices and similarly the growth can be 7.5 per cent. “But there are remote chances of attaining this level of growth,” he adds further. To attain good growth and control inflation, “the government should manage subsidies well which is loosely manages as of now,” Gulati cautioned.
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