Thursday, February 15, 2007

Containing inflation?

What Govt of India, along with its various ministries & arms, is doing to contain inflation:
  • Increasing short-term interest rates - but asking banks not to increase their PLRs
  • Cutting import/custom duties marginally - with no real effect on commodity price trends
  • Making announcements about serious concerns on inflation - hoping that announcements will have some impact
  • Asking commodity producers to not increase prices
  • Banning derivative trades in a few commodities (whats that got to do with inflation - really beats me)
What it is not doing:
  • Cutting wasteful government expenditure, especially its huge salary/wages burdent
  • Improving allocations to infrastructure so as to eliminate inefficiencies and high costs of logistics & middlemen in the economy
  • Letting the market decide prices of key agricultural commodities
  • Letting the market decide the rupee-dollar exchange rate (although there has been an 'announcement' promising the same)
  • Discouraging tax incentive/subsidy induced growth, as in SEZ with 10 year All-tax holidays
There are many more actions that the GoI is or isn't doing, of course, but I hope that the partial list above illustrates the point.

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