Marriage and festival seasons start from January 15. Thereafter, food prices start moving up. But, this January has been depressingly different. According to met department records up till now, it is the coldest winter in recent memory. And, the prices of poor man's food articles are the hottest. The food price inflation is hovering at an all-time high 18-20 per cent in the wholesale market. The retail price inflation is worse, almost 40 per cent for many items.

The price of sugar in the retail market is inching towards a record Rs. 50 per kilo despite the fact that this is the peak sugarcane crushing season. Edible oil prices are going through the roof. So are the prices of pulses. The popular moong dal is being sold at Rs. 130 in kg or more in most retail shops across the country. The prices of various rice varieties failed to ease despite new arrivals in the market. The prices of potato, onion, ginger, eggs, fish, meat, milk and milk products, processed food and winter vegetables are ominously moving up, portending tougher times ahead for the poor and the common man, who do not seem to have been touched much by the government's economic stimulus. They have been hardest hit by last year's monsoon failure resulting in lower food grains and other agricultural production and their high prices.

The shortage of farm output and supply shortfall in respect of food articles are not the only reasons behind the rising prices of basic items. The latter have something to do with a huge growth in the money supply with the public. However, this section of the public, boasting pots of cash in pocket, is not to be mistaken with Aam Admi or the general public. They are the privileged lot. They are well-to-do businessmen, traders, industrialists, stockbrokers, high-salaried business executives, real estate agents, insurance agents, doctors, lawyers, central government employees, transport operators, various service providers and even big bracket pensioners. Their number is pretty large, almost 300 million. They are flush with funds. They are hardly bothered about the price food articles are being sold in the market.

The big spurt in corporate tax collection in December, the huge flow of foreign institutional investment (FII) in the secondary market, rise in the collection of individual income-tax, increasing imports of luxury goods such as wine and liquor, perfume, gold, diamond, furniture and home décor, record automobile sales, hardening of rates in the real estate market, etc, point to the booming disposable income with this huge privileged section of the public. Their surplus income and less careful expenditure are significantly contributing to the growing price inflation in the supply-hit food market. Food is consumed by all, the rich and the poor. However, food shortage affects poor people a lot more than the rich. In a shortage situation, food prices tend to increase much more as they hardly influence the purchase decisions or consumption patterns of those having deep pockets.

Thus, taking any measure to control inflation of food articles is easier said than done. A better use of the public distribution system and meeting supply shortfall through bulk imports are of help. It will require a tremendous effort on the part of the government to make its long neglected public distribution system work effectively not only for those under the BPL (below the poverty line) category, but also for a huge section of under-paid, under-waged population who may be marginally better placed than those under the BPL list. At the same time, the government must end the cheap and easy money regime and tighten the screw on unwarranted monetary expansion and consumerism even if that means a lower GDP (gross domestic product) growth.

A trend towards a higher rate of demand-push inflation is already being noticed this year in various key sectors such as steel, cement, zinc, automobiles, coal, cargo freight, real estates, etc, following a better recovery of the economy in 2009. The industrial output surged a two-year high level of 11.7 per cent in November, 2009. Large wage increase of government and semi-government employees, teachers, bank and public sector executives and staff have substantially contributed to the current monetary expansion leading to an overall demand growth for all articles.

Early indications are that the overall inflation rate may top the double-digit mark by July-August, this year, unless the government takes immediate anti-inflationary measures by holding higher stocks of petroleum crude, edible oil, food grains, pulses, sugar, etc. through their advance imports and stepping up domestic procurement wherever possible. The inflation rate has already jumped by 7.31 per cent, the highest in the last 12 months. Crude oil prices are predicted to go up to US$ 100 per barrel, almost at the levels of 2007-08, when India's inflation rate (WPI) went up to 13 per cent despite much lower levels of prices prevailing for food articles. Under the circumstances, inflation control, especially of essential items, should receive top priority in RBI's monetary policy and the government's fiscal policy.

The government has done well to manage the economic downturn last year in the wake of global economic melt-down after the collapse of a series of US investment banks in 2008 and its domino effect on the world financial and business systems. The fiscal stimulus given by the government had worked well and the economy is expected to clock a 7.5 per cent growth or more in 2009-10. While there exists a definite case for the continuation of economic stimulus through 2010-11, the impending inflation factor needs to be taken more seriously and the RBI must take monetary control measures to arrest the excess money supply with the middle-class and government servants who have emerged as the biggest spending force in the country.

There has to be a better blend between the monetary policy and the fiscal policy of the government. Consumer lending rates of commercial banks need to be pushed up. Banks will not lose much business if they raise their prime lending rates to the levels of 12 to 13 per cent. Both short and long term deposit rates should be revised upward to mop up surplus money with the rich and middle-income group. An interest rate hike of two to three per cent in the case of bank fixed deposits is unlikely to affect the share market and mutual funds operators. Sure, there will be resistance to such monetary control measures from industry as well as commercial banks, generally the key beneficiaries of the cheap money policy. But, the government must withstand such pressures to stabilize prices and to protect the interest of the common man.

There is no great pride in achieving high economic growth numbers which are not representative of the common good and the well being of the whole society. The inflation control should receive top priority in the government's economic management programme for the current year. Suffice it to say that credit boom stokes inflation and create asset bubbles which do not make good growth indicators. (IPA Service)