Sushma Swaraj initiates price rise debate in Parliament

[Shilpa.Sharma]

Leader of Opposition in Lok Sabha Sushma Swaraj on Tuesday initiated the debate on price rise in Parliament. BJP Parliamentary Party met earlier in the day to discuss the strategy for debating the price rise issue in the two Houses.

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[shorav]

If India has to eliminate poverty, doesn't it mean that the poorest class (labor class) has to get higher salaries. If so, wouldn't that increase the price of producing all goods and thereby increase the price to sell?

 

[Known_Unknown]

If India has to eliminate poverty, doesn't it mean that the poorest class (labor class) has to get higher salaries. If so, wouldn't that increase the price of producing all goods and thereby increase the price to sell?

Yes, that's what's called inflation. As long as the growth in the economy is around 8% and inflation is below that figure, people will be earning more every year, and saving more every year, thus reducing overall poverty. However, if inflation is higher than the rate of GDP growth or if there is a period of relatively low growth combined with massive inflation rates (stagflation), then there will be a prolonged slump in the economy that could take a decade or more to reverse. That's why we need to be very sensitive to inflation rates and make sure inflation stays low even if we do not grow as quickly.

 

[Rage]

The most important thing to remember with Indian inflation is that the RBI is banking on a normal monsoon and relatively stable international oil rates to tame inflation. Unfortunately, both of these are beyond their control. With the Central Bank raising prime lending rates by 0.25% a pop, while at the same time increasing economic forecasts, they're sending out the signal that they're committed to baby steps and a "soft-interest rate policy", leading to economic growth rather than to taming inflation. On the other hand, what they're doing is raising key rates more than forecast, and more often than forecast- at every six weeks, instead of every quarter- so that speculative dynamics work to reduce inflation bit by bit, without imperiling economic growth. I'm not sure it's the best policy to curb inflation- the RBI, imo, ought to raise interest rates by at least 50 bps if it were committed to reducing inflation. It is however the classic case of trying to appease a populace, that is seeing or has seen a vast erosion in its purchasing power, and businesses, which do not necessarily want to see high lending rates.

On the other hand, supply constraints in India are leading to high inflation. If we do not address issues of storage of goods- particularly food, where millions of tonnes rot every year- we are bound to see inflation higher than is required. The best long-term strategy to control inflation is to invest in production and storage, and in power generation - so that high-pricing imperatives are taken away from producers and back to consumers- to which monetary policy can better control.