Inflation Targeting: Does NDA’s latest commitment negatively affect farmers, just like Land Acquisition Bill?
Inflation targeting maybe a right move by finance ministry (and RBI), it would have been better if consent of farmers was taken too.
With India committing to inflation targeting, after finance ministry and Reserve Bank signed a monetary policy agreement between them, it now joins 28 other nations that fix an explicit inflation target in advance and work towards achieving the same. In addition, Reserve Bank of India (RBI) now shoulders bigger responsibility to realize the given objective, failing which it has to come out with an official explanation.
As per the latest monetary policy structure, central bank will work towards containing consumer price inflation (CPI) under 6 per cent by January 2016 and 4 per cent (+/- 2 per cent) for 2016-17, and all the approaching years.
The decision has been hailed by economists worldwide and rating agency Moody’s, which expressed distrust over India’s fiscal scenario earlier now poses faith in it and even termed the framework as ‘credit worthy’ – a huge plus for the country.
Despite all the approbation, the resolution manifests some treacherous virtues as well.
On close scrutiny, the latest commitment from National Democratic Alliance (NDA) at inflation front comes out to be anti-farmer. How?
Considering low per capita income ($1,509 as per IMF data for the year 2013) and abnormally high weightage to food and non-alcoholic beverages (FNB) i.e. 45.86 per cent in the new 2012-base combined index in comparison to 28 other countries in the list, case of India stands firmly distinct from others.
As Harish Damodaran argues in his article “Against the grain”, CPI inflation is in comfort zone at present, and has declined dramatically to 4.9 per cent in the last four months, ending January, from a high of 10.19 per cent in 2012-13. But, it has nothing much to do at RBI’s end as favourable external factors, better agricultural produce, descending global oil and lower farm commodity prices have assisted the decline, not cuts in repo rates.
There is every leeway retail inflation may witness sudden rise anytime on account of geopolitical turbulence and unfavourable weather conditions. And by virtue of food’s large share in the headline inflation index, hard days may stage a comeback in revised set-up.
Inflation targeting may be of utmost importance in countries with organized farm sector where food component forms only 20 per cent of consumption expenditure. In economies with relatively higher share of food constituent in index, such a practice bears no connotation.
According to an official note released by Yes Bank Ltd on 2 March, 2015: “the adoption of the new framework also increases the responsibility of the government to maintain fiscal prudence as fiscal slippage especially on account of higher unproductive spending would be inflationary.”
Therefore, not only the RBI but central government also needs to uphold fiscal discretion in every sense to thwart inflation from rising again. There lies every chance that the government may look towards:
• Lowering for Minimum Support Prices (MSP)
• Putting boundaries on farm exports on the least excuse
• Opening up to duty-free imports
This can be suicidal for farming population of the country, which is already resisting the amended Land Acquisition Bill by NDA. The government will try its very best to come out clean in the process by not giving in to any of the demands which clutch potential to pump up inflationary forces.
And considering the effect that the latest monetary framework may have on the farming population of country, discussions are very much warranted in this regard in the Parliament. Just like Land Acquisition Bill, Inflation targeting may negatively affect Indian farmers.
Had media, politicians and our famed intelligentsia focused on the issue, should have in fact; absolute political spectrum of the country would have witnessed a major revision? The tragedy is that we are generally too oblivious to the significance that statistics hold in the nation building.
Regrettably, a big bloc of news media eccentrically restrains from encouraging debates on these crucial issues as they don’t pledge profitable rejoinder from average viewers who generally lack consistent understanding of such numbers.