Inflation is the key.

As Governor of the Reserve Bank Mr Raghuram Rajan is under no illusions. He says that growth, fiscal deficit, current account deficit and inflation are the major challenges for the new government. They are linked in that irresponsible spending by the government leads to deficits as expenditure outstrips revenues so the government borrows more money, which diverts funds from private sector investment, and increases taxes, leading to falling growth and high inflation. Mr Rajan has been trying to control inflation since his arrival. The Congress was profligate with our money creating 51 ministries with 79 ministers to hang on to power. This was shocking as the US, a $16 trillion economy, has only 15 Secretaries and 7 of cabinet rank, making 22 in all. The more the ministers the more the loot as they frantically sweep up any note available in case they lose the next elections. And they were right. The Congress is down to 44 seats from 206, the DMK and BSP have been wiped out and the SP is down to just 5, all from the ruling Yadav family. Vast amounts of black money has led to rocketing property prices so that people on salaries cannot afford to buy their own apartments. As growth slowed companies were unable to service their debts which meant that Non Performing Assets rose in banks who were now reluctant to lend for new investments. Import of capital goods declined. Gold import was severely restricted to control CAD resulting in a rise in smuggling. The Congress was forced to cut productive spending because it could not reduce handouts which had been its slogan from the beginning. The trouble with handouts is that you soon lose control of the distribution because officials who are supposed to implement the schemes see it as free donations and fill their pockets. Some see them as unfair because they pay taxes but get nothing in return and so try to join queue. The collective wisdom seems to be that increasing supplies by increasing agriculture output will being down food prices and will control inflation. But how? Agricultural land is falling as the property price bubble has led to a massive construction boom. Farmers have sold their land for sums resembling telephone numbers. With El Nino expected this year the monsoons may not be as prolific as last year. Genetic engineering is not the answer as the US is finding out with super weeds spreading. The US state of Oregon is trying to ban GM food. The answer is really simple. Those with more children will not be eligible for handouts and handouts should be linked to productive work, such as building toilets or schools. But then where will be the loot?