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'Price rise is a fact of life. You have to adjust'

June 6, 2008

What are the causes of inflation that we are facing today? Do you think it is due to only higher oil price?

It is well-established that inflation is due to international prices of some commodities like foodgrains and oil. Oil price doesn't affect the consumer directly unless he is using it, but oil passes on inflation to other commodities.

Rise in foodgrain prices affects poor people. But, in an economy that is globalised it is difficult to insulate ourselves when world prices of foodgrains are going up.

There is the question of supply bottlenecks that Finance Minister P Chidambaram talks about. I don't attach very much importance to that, because our production system is quite okay. Even the production of rice and wheat is not falling.

But, supply constraints may be there in respect of demand. People's income ha increased, but if supply does not keep pace with demand, the government needs to import. With our huge foreign exchange reserves this 'supply bottleneck,' too, is less important to me. The problem with import is that prices of foodgrains and commodities are high, so when you import, prices in the domestic market may not go down.

Prices can be controlled and the impact of inflation curbed only if you supply the essential commodities through the Public Distribution System to the poor. But then there will be a financial cost to the government. One cannot control price rise by remaining insulated from the world market or by stopping import-export or by going after hoarders.

Image: Indian farm labourers use shovels as they separate grains of wheat from the husk at a grain market in Amritsar. | Photograph: Narinder Nanu/AFP/Getty Images

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