inflation india gupta

The pseudo Economists will kill Indian economy by Prof R K Gupta-India (View MyPage) on May 12, 2007 05:50 PM  | Hide replies Several theories are put forth by fraudulent experts who normally hide when there is bad time and emerge to explain growth , when it starts to happens. It is same way in stock markets when , the share markets boom, every TV channel and newspaper has suddenly several experts and investment advisors shouting to explain why this is happening. But when opposite happens they simply disappear and hide. The theories of trying to control Inflation, by RBI and GOI are outdated and foolish attempts and based on economics theory of regulating money markets and State intervention whichbhave little crdibility. These can only work in a disciplined market and stable matured economic conditions like in USA or UK. India is Far far away from it. A corrupt society, with severely unequal distribution of money, black money almost equal to official GDP generated every year, easy money flow form abroad, delicensing and speculations without any control, property prices soaring up without any logic, idiotic encouragemenmt ot retailing sector that has little to add value but contribued to fire in real estate markets, bullion prices are going up and share scrips have also gone up suddenly never seen in past except for brief period of harshad Mehta scam , but that was nothing as now. The government figures are fraudulent. I challenge GOI and all State governments to produce actual retail prices of 100 household items of daily consumption,semi durables and durable goods as on 2000 April and now ( except for electronic based items).The real inflation to consumer has been 15-20% per year range in most goods in last 5 years including drugs and property inflation 30-60% per year over last 5 years. It is now out of reach of common man whose salry has increased only at rate of 5% per year.High property rates result in panic and higher rents and cost of business which in turn fuel up prices. There is too much of liberalization with directors and senior executives of corporatuons fixing for themselves lacs of rupees of salaries per month or year in false euphoria created of India shining and in name of liberalisation of company laws.The money coming from abroad is mostly laundered money that is fueling property and bullion prices. Also share prices. Uncontrolled loot is going on in country with high speculation, land mafias busy , SEZs being set up with no future benefits, shamelesds and exhorbitant rate property auctions , etc with little or no control of government. The funny Institutes like RBI,SEBI etc and Our PM and FM who are pseudo experts ( in fact novices) in economics and Public administration are merely trying sketchy methods without any base and effectiveness just to show action knowing that what they are doing is an eternal run of the mill cut and edit exercise which is half hearted trial and error attempt with not much results. The situation in India has become pretty bad at cost of average consumer whose life has become hellish now. The promised dream shown when LPG was stared in 1991 has gone just the opposite. Instead of expansion of goods and quality improvements, and consequent price decreases, prices have increased severely and quality standards have gone down. Yes , a few lac people have become millionaires suddenly in few years. That is net gain of 15 years LPG and leadership of fraudulent economic experts like ManMohan Singh and Chidambram. The fall of congress is certain as this party no longer deserves to exist as it has lost relevance with most of its leaders boneless, corrupt and dividing society centered around one family projecting it as opoor substitute for Queen of Enmgland and a mascot of virtues and capabilty , in attempt to woo voters forgetting that their competitive parties will do the same quickly. Indian scenario looks pretty bad. It is actually shameful that after 60 years of independence , we have so high price rise rate, out of proportion real estate prices, rampant corruption, virtually non functioning judiciary,corrupt police organisations and general state of affairs which we can call laissez faire, safely. RBI will have to learn some new lessons and stop unnecessarily try to play with money markets as nothing is going to happen with 1% CRR or interest up or down,.In fact Indian governments are suffering from illusion that Government has duty to run business and manipulate markets. What government has to do is ban exports of fruit vegetable and cereals, release at least 10 million sq meters of land in all cities and metros in next 6 months, stop foolish auctioning of commercial sites, stop foolish SEZ policy that will be mere wastage of resources and will uproot farmers without an y long term benefits but will create social problems and see that Indian manufacturing sectors speeds up and goes higher than China. There should be control on salaries given to public servants and Private sector as this loot ultimately comes from pocket of consumer and tax payers and bound to create inflation as easy money is spent easily. Will our planners and senior bureaucrats try to understand above scenario and mechanism and take action before a civil war like situation emerges in the country?The inequality is actually increasing in all terms including earning power. This will rock the society soon.      Forward  |  Report abuse Business » How to tackle inflation How to tackle inflation ShareComment To get such articles in your inbox Text size:  A   A   A February 08, 2007 11:36 IST Is the government getting needlessly hysterical about inflation? Many people think it is okay to tolerate some inflation if, in return, it is possible to sustain higher growth rates. Nothing matters as much for peace, prosperity and poverty alleviation as high GDP growth, so I would always advocate any policy which delivers higher sustained GDP growth. However, the link between inflation and growth is complex. High inflation does not give high growth. The growth miracles of Asia, where above 7% growth was sustained over a 25-year period, were not associated with high inflation. In fact, countries with high inflation have tended to have low growth. In the business cycle, an acceleration of inflation can support a temporary acceleration of growth. In India, expected inflation has gone up from roughly 3% in 2004 to roughly 7% today--a rise of 4 percentage points. Interest rates have risen by less than 4 percentage points. As a consequence, real interest rates have actually gone down. Borrowing has become cheaper; we have a credit boom; and this is giving heightened GDP growth. If inflation now stands still at 7%, this boost to GDP growth will fade away. Episodes where inflation went up are associated with a brief acceleration of GDP growth. A government can jolt an economy by raising the inflation rate. This heightened growth is not sustained. Conversely, achieving high sustained GDP growth is about fundamental issues of economic reform, and does not concomitantly require high inflation. One of the great strengths of India is that the political system just does not accept high inflation. This is one area where politicians have been ahead of the intellectuals. Inflation of 3% is politically acceptable, and inflation above 5% sets off alarm bells. The government that can jolt an economy by raising the inflation rate then has to go through the costly process of wringing out the inflation, to get back to 3%. Since there is no tradeoff between inflation and GDP growth, Parliament is right in demanding low inflation and high GDP growth. Currently, in India, we go through boom-and-bust cycles; sometimes GDP growth rates are very high and sometimes GDP growth rates drop sharply. This boom-and-bust cycle is unpleasant for every household. There is a powerful international consensus that stabilising inflation reduces this boom-and-bust cycle of GDP growth. The ideal combination, which has been achieved in all mature market economies, is one involving low inflation, which is also predictable and non-volatile. Low inflation volatility induces low volatility of GDP growth. Low and predictable inflation also reduces the number of mistakes made by entrepreneurs in formulating investment plans. What India does not have is an institutional capacity for delivering predictable, non-volatile inflation of 3%. In socialist India, the way to deal with an outbreak of inflation was to do government interference in commodity markets. A few commodities that "cause" inflation are identified, and the government swings into action: banning exports, giving out import licences, banning futures trading, sending the police to unearth "hoarding", etc. This is deeply distortionary. Milk exports were banned, and milk prices fell. But why should milk farmers pay for a macroeconomic problem of inflation? The cost of bringing down inflation needs to be dispersed all across the economy. If milk prices had been allowed to rise, then more labour and capital would shift from unproductive cereals to high-value milk production. India has the potential to be the world's biggest exporter of milk. But this requires a sophisticated web of producers, supply chain, exporters, factories, etc. This sophisticated ecosystem will not flourish when the government meddles in the milk industry. A meddlesome government will go through the whiplash of doing an MSP one day because milk prices are low and banning exports another day because milk prices are high. There is something profoundly wrong about a government that interferes in what can be imported and what can be exported. If the export of ball bearings were sometimes banned by the government, you can be sure there would be fewer factories to build ball bearings. India is evolving from a socialist past into a mature market economy. How can predictable, non-volatile inflation of 3% be achieved? The recipe that has been developed worldwide is to devote the entire power of monetary policy to this one task. In India, the RBI has a complex mandate spanning over many contradictory roles. This has led to failures on inflation control. In a mature market economy, a modern central bank watches expected inflation with great interest. Active trading takes place on the spot and derivatives markets, for both ordinary bonds and inflation-indexed bonds. Using these prices, a modern central bank is able to infer expected inflation. When the short-term interest rate is raised or lowered, in order to respond to changes in expected inflation, there is a slow impact on the economy, possibly spread over two to three years. A modern central bank has the economic knowledge required to watch out for expected inflation deep in the future, and respond to it ahead of time, so as to deliver inflation that is on target. In India's case, the RBI Act of 1934 predates modern monetary economics. In other countries, fundamental reforms have been undertaken in order to refashion monetary institutions in the light of modern knowledge. As an example, in the late 1990s, when Tony Blair and Gordon Brown won the election, they refashioned the Bank of England as a focused central bank which has three core values: Independence: the Bank of England sets the short rate without involvement from the Ministry of Finance. Transparency: the entire process through which interest rate setting is done is fully transparent so that the financial markets always know exactly what is being done and why. Accountability: the Bank of England is accountable for hitting an inflation target. All tasks other than the inflation target were removed from the Bank of England. The bad drafting of the RBI Act of 1934 is the ultimate cause of the distress of milk producers today. These linkages are not immediately visible, but they are very real. It is because India does not have a proper institutional foundation for monetary policy that we are reduced to distortionary mechanisms for inflation control. Ajay Shah Source: