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Rising prices? Here's how to tame them

July 10, 2014 08:16 IST

Rising prices? Here's how to tame them

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BS Reporter in New Delhi

Deregulation of diesel prices, power sector reforms, linking the rural job guarantee scheme’s wages to productive projects and tight fiscal consolidation are the priority measures that should be taken to tackle high inflation, Economic Survey, 2013-14, said.

It also said ending the open-ended food procurement by Food Corporation of India and setting time-bound targets under the Fiscal Responsibility and Budget Management Act, apart from moving towards creating a national market for agricultural commodities, are other strategies that could control price rise.

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Image: A labourer ties cloth around his head before unloading coir rolls at a wholesale market in Kolkata.
Photographs: Rupak De Chowdhuri/Reuters

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The observations were made as the country stares at a 71 per cent probability of sub-normal monsoon, high oil prices and exchange rate volatility.

These are hurdles in the government’s plan to bring down inflation.

“The government has to work towards a low and stable inflation rate through fiscal consolidation, moving towards establishing a monetary policy framework and creating a conducive environment for a competitive national market for food,” the Survey said.

Initiation of reforms on these fronts will reduce inflation uncertainty and restore stable business environment, it said.

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Image: Finance Minister Arun Jaitley.
Photographs: World Economic Forum/Wikimedia Commons

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In its first Economic Survey, the Narendra Modi-led government said the Wholesale Price Index-based inflation might come down by the end of 2014, giving room to the Reserve Bank of India to ease its tight monetary stance by the end of 2014-15.

Acknowledging the challenging tasks in controlling inflation, mainly those relating to food prices, the Survey said cereal markets have resource mis-allocation due to government interference in every aspect.

“Food inflation has remained a major driver of inflation since 2011,” the Survey said.

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Photographs: Reuters

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It also advocated removal of inefficiencies in the country’s largest grain procurer, state-run Food Corporation of India, by introducing a more competitive framework.

“If the policy of supporting farmers through Minimum Support Price and procurement is to continue, the MSP should be scrupulously linked to the cost of production.

“Procurement should not be open-ended and the practice of some state governments of charging as high as 14-15 per cent mandi fee/tax and paying high bonuses over and above the MSP must be discouraged,” the Survey said.

While farmers can be incentivised by gradually removing restrictions on exports, it said, FCI can learn to procure stocks from markets more efficiently and manage risks through futures market.

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Image: Vegetable vendor Sabita Mondal.
Photographs: Dipak Chakraborty/Rediff.com

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