THE GIST of Editorial for UPSC Exams : 15 December 2018 (Negative signals: on falling inflation rates)

Negative signals: on falling inflation rates

Mains Paper 1: Economy
Prelims level: Inflation
Mains level: Negative inflation rates and it s impacts on economy

Context

•  Retail inflation dropped to a 17-month low of 2.33% in November, as compared to 3.31% in October, primarily due to the fall in the prices of various essential food items.
•  Food prices fell by a huge 6.96 percentage points compared to a year ago and, at minus 2.61%, are now in deflationary territory for the second successive month.
•  The fall in inflation is obviously good news for consumers, particularly those in urban India who are happy to pay less for their purchases; also for the Reserve Bank of India, which will now have more room for manoeuvre in the matter of interest rates.

Analysing the agricultural distress

•  The producers of basic food items who are located in the distress-affected rural parts of the country, with falling farm incomes also impacting landless labour and rural demand.
•  At the heart of this problem is the unpredictability of farm prices, which are known to exhibit extreme levels of volatility owing to various supply-side issues that plague the agricultural sector.
•  Though farmer producer companies have stepped in with help and guidance to farmers to use hedging tools to minimise price risks, they are too few and far between to make a difference.
•  Finally commanded impressive prices in the retail market, the cartelised agricultural marketing system has made sure that farmers received little to nothing.

Way forward

•  Ahead of the general election next year, State governments across the country are likely to resort to short-term relief measures such as farm loan waivers to temporarily relieve farmers of their deep distress.
•  There will also be pressure to announce higher minimum support prices for various agricultural goods.
•  It is another matter that no government has ever had the wherewithal to deliver on such lofty promises.
•  The poor implementation of MSPs is one of the reasons for farmers taking to the streets in protest.
•  The Centre may prod the new RBI Governor to adopt a more dovish monetary policy stance in the run-up to the election citing falling inflation figures.
•  But none of these measures will help farmers, who have increasingly taken the protest route of late to make their demands heard, in any meaningful manner in the long run.
•  Real agricultural reform is crucial to enable farmers to freely make their own business decisions without the grabbing hand of the government.

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General Studies Pre. Cum Mains Study Materials

Prelims Questions:

Q.1) With reference to economy, stagflation occurs when there is:
1. Decline in economic growth
2. High unemployment
3. High inflation

Select the correct answer using the code given below.
(a) 1 and 2 only
(b) 1 and 3 only
(c) 2 and 3 only
(d) 1, 2 and 3

Answer: D

Mains Questions:
Q.1) Examine the falling food prices will intensify rural distress; the solution is meaningful agricultural reform.