.......Even RBI is very puzzled as to why India’s inflation rate, historically moderate and lower than most emerging economies, is among the highest in the world since 2010. In a recent public address, RBI’s Executive Director and a reputed monetary economist, Deepak Mohanty, described the current phase of growth collapse and elevated inflation as a big puzzle. He said in 62 years since 1951, India’s WPI inflation rate was 6.7%. “This was not a very high rate considering many developed and developing countries experienced very high inflation in their modern development history. World inflation averaged around 17% in the 1980s and 1990s.”.........
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After all the serious analysis, the observation “The finance minister can certainly do something about growth and possibly pray for lower inflation” which leaves FM not any wiser, is intriguing. The present RBI Governor Dr Subbarao has been all along articulating his expectations from the FM by way of fiscal policy support for central bank initiatives to tame inflation. As time is running out let us think differently and suggest some one-time measures which the FM could consider at this late hour for consideration: (i) Consider steps to price land and other resources being ‘gifted’ to corporates and rich individuals under various pretexts at market rates and plan recovery of costs as and when such ‘gifts’ start giving return (ii) Introduce a one-time surcharge on income tax payable by super-rich and create a rolling fund for financing social sector (iii) Abolish New Pension System. This will absolve employers’ commitment to make ‘matching contribution’. As financial position improves, employers including GOI should create pension funds to honor future commitments. (iv) Stop subsidizing interest rates on loans for any purpose including agriculture beyond reasonable levels. Kerala has come out with zero-interest rate short term agricultural loans. If states do this on their own like this, introduce disincentives.
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