Monday, June 25, 2007
A congratulatory article, featuring a photograph of the Finance Minister, in an English daily on 23rd June claimed that inflation rate in India has come down to 4.28% and proceeded to give a list of all the items whose prices are holding steady. In an interview with Sharanjit Leyl on the programme, Asia Business Report, on the BBC on 21st June a finance executive ( forget his name ) said that while wholesale inflation has indeed dropped to below 5% consumer inflation was more than 8%. So much for our freeloading press. In the view of this expert India needs to cut down growth rate to 7% from the current 9% for inflation to start falling. This, he said, could be achieved by 1. letting the rupee appreciate further in value, 2. increase interest rates and 3. increase the cash reserve ratio (CRR) for banks. Already the garment industry is losing customers to China and Bangladesh and further increase in the rupee exchange rate will seriously hit export industries. Also by making imports cheaper domestic producers will also see pricing pressure. Auto sales have fallen because of increasing interest rates and any further increase will hurt all companies. Increasing interest rates and CRR may hit the property bubble and cause a collapse in prices. Since the Enforcers and friends have invested a large portion of their black money in property any collapse in prices will seriously inconvenience them. Yet lies will not convince the aam aadmi who is bleeding because of inflation and elections are coming up. What are the economic terms for a rock, a hard place and the deep blue sea?
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