Stagflation - A.Seshan

The immediate solution to the problem of low growth and high inflation lies in short-term measures (“Stagflation ahoy,” Business Line, July 14). The emphasis, inter alia, on accelerating investment as an engine of economic growth is well founded in economic theory and practice. There are two points that need to be noted. Net, and not just gross, investment has to increase to raise the growth rate. The Twelfth Plan revealed the document referring to gross capital formation. Thus, the one-trillion dollar worth of infrastructure investment is a gross figure. We do not know how much it provides for the depreciation of the capacity of the existing assets. Second, most of the big-ticket projects will take time to yield results. In the meantime, money would have flowed into the economy with the inevitable consequence of inflation. What is needed is to make the best use of the favourable monsoon by launching an intensive agricultural programme with larger use of high-yielding seeds and fertilisers. A recent experiment by the Maharashtra Government in Mumbai to get vegetables from the wholesale markets and supply them to the public through cooperatives eliminating the middlemen was a resounding success. The consequent price reduction at the consumer level was around 50 per cent in many cases. It needs to be replicated on a wider scale throughout the country. The strong argument in its favour is that it will not involve any price subsidy except for the administrative expenditure. It will provide the needed shock to the inertial equilibrium of current inflation. 
- A. Seshan, Mumbai (HBL)