Thursday, May 31, 2012


Economists world over consider inflation as a dampener for growth and suggest fiscal discipline to control inflation. Running into uncontrollable debts is not considered an ideal way of managing development though its avoidance completely is not practical. When it comes to food which is consumed day in and day out for life sustenance, unless there is price stability it may be difficult for the people to balance the family budget and higher the inflationary pressure lesser will be the purchasing capacity of the citizen forcing reduction in the intake of food with disastrous consequences in the long run. Thus any government worth the name must consider controlling food inflation as a high priority effort to protect its population from vulnerability to frequent price escalation. If Asian Bank experts are to be believed countries in the South Asian region are undergoing stress from food inflation caused by many factors and unless the governments in these countries tighten their policies to control inflation their population may be most vulnerable to food related discontent leading to unrest and misery among them. Blaming developments else where in the world for their problems can bring very little solace and the solution has to come from within. Here is a discussion paper put out by ADB for guidance of the countries in the SAARC Region. 

"Asian Development Bank (ADB) said major direct impact of persistent higher food prices in South Asia to have adverse impact on growth as it reduces real income consumption, saving and investment. Interest rate tightening as policy response to control inflation would reduce aggregate demand and lead to further economic slowdown.  Implementation of food subsidies and other social safety net programmes are likely to increase current expenditure and worsen the fiscal deficit. In particular Bhutan, Sri Lanka, India, Pakistan and Maldives, which already have relatively high fiscal deficits, according to ADB South Asia Working Paper Series, 'Food Price Escalation in South Asia-Serious and Growing Concern', released on Monday. The ADB Working paper pointed out South Asia is arguably the most vulnerable region to increasing food inflation given the large segment of the population living below or near the poverty line. This paper deals with the problems related to food price inflation in South Asia in a comprehensive manner. It presents an in-depth empirical analysis of the possible factors that could explain the increase in food inflation and discusses the impact of food price inflation on poverty and macroeconomic stability in South Asia. The paper proposes some practical policies to address the situation, including how regionalism may be a solution to food inflation".

High fiscal deficit is a continuing feature of the economies of these countries and invariably raising interest rates has been the standard response by the governments. Whether such fiscal policies can impact the food inflation is a matter that needs to be considered though many believe it is so. The net effect of food inflation will be progressive reduction in the purchase of food by those who are already languishing in poverty, making their lives more miserable. The massive food subsidies help to insulate those who are below poverty line from such inflation to some extent but such subsidies are confined only to food grains whereas for a healthy life one needs protective foods like fruits and vegetables, pulses and edible oils which are the victims of uncontrolled price inflation. Whether ADB's suggestion to cork the Geni of food inflation will work or not is some thing remains to be seen in these countries if and when they accept them. 

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