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Price Rise and the politics around it




A couple of years back, there was a sustained push in terms of liquidity in the global system, and as a result, the huge amounts of cash were pushing up the prices of all commodities, resulting in food inflation numbers being high. However, the recession for the past 2 years brought down this excess liquidity in the system to some degree, causing a reduction in the inflation numbers through 2008. But, to combat the poor economic condition and to ensure that the recession does not become stronger, Governments the world over had to open their purses and spend huge amounts in order to push weak companies (whose collapse could set off domino effects) to remain afloat. One problem with the spending of such huge amounts of money was that they also pushed in an excess of liquidity in the system, causing too money in the system.
This in turn resulted in an overall increase of prices of commodities, and since the Indian Government has been pushing up the prices that they give to farmers for the different crops, there was a push to food based inflation. The Government may well be arguing that they cannot stop international trends, but there are a number of steps, in terms of better monitoring, quick decisions on importing or procurement, letting more players into the retail business for pushing more efficiencies and reducing waste, and a number of other steps. For example, the productivity levels of Indian farmers is not very high, and yet there is no effort by the Government to push for more education to increase the growth levels per acre.
However, politically the increase in prices hurts the Government, and hurts the party in power (the Congress), and gives the opposition a stick to beat it with. Nobody wants to be associated with the political blame game that happens with an increase in prices, so State Government refuse to accept any part of the blame, even the agriculture minister (Sharad Pawar) would rather that all steps taken so far are actually Cabinet decisions (since he does not want the blame to stick to him), and so on. In such situations, the Government can only make statements such as assuring that the worst is over, and that prices will soon fall. It cannot do something else for the short term.




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