The media have been giving the alarm call in the past few days about the rise in the prices of vegetables and fruits. Apparently, the overall trends have been found to be sufficiently disturbing to have prompted the Finance Minister to prepare a detailed paper for a discussion at the Prime Minister's level.

The recent raising by the RBI of the repo and reverse repo rates, about a month earlier than such an announcement was due, was also no doubt an attempt to suck out the excess liquidity from the system and stop inflation from crossing the ceiling of 5.5 per cent that the RBI had fixed for the current financial year.

The RBI has a difficult job on hand on two fronts: Containing money supply (up from 14 per cent last year to 18 per cent) and putting into effect measures to check the rise in wholesale price index-based inflation rate. On both counts, it cannot do without the Government also pulling its full weight in support. For instance, the resources that could be made available for utilisation of idle capacity and increased production are eaten into by misgovernance, in the sense of squandering with thoughtless abandon public funds on freebies, subsidies, and salaries, besides pilferage and corruption taking their own toll. The resulting shortfall pushes up prices.

A feature special to India is the phenomenal rise in the income of professionals and business persons. It makes them unconcerned about the price demanded for goods and services, and this has its own cascading effects on prices in general. They are to be blamed for the sky-rocketing of rentals, and prices of real estate and household services. It is because of them that India's is fast getting converted into a high cost economy, in danger of losing its advantage on the global plane. In sum, a holistic, and not an ad hoc, view needs to be taken on ways to stem the rise in prices.

B. S. RAGHAVAN

© Copyright 2000 - 2009 The Hindu Business Line