THE GIST of Editorial for UPSC Exams : 23 September 2019 (Let prices rise (Indian Express))

Let prices rise (Indian Express)

Mains Paper 3 : Economics
Prelims level : consumer price index
Mains level : consumer price index inflation levels

Context

•  Current consumer price index (CPI) inflation levels allow enough “room” for continued monetary easing.
•  Policy rate reductions beyond the 110 basis points are already affected this year.

Food inflation

•  The credit for the going down of overall retail inflation to an average of 3.50% goes mainly to food items, which have a 45.86% in the CPI.
•  Average consumer food inflation has been even lower, at 1.38 per cent, over this 36-month period.
•  If CPI inflation has to remain within the RBI’s target of 4%, it would hinge upon sustained low food prices.

Highlights the problems

•  This leads to a temptation to engage in “supply management” to contain food inflation at any cost.
•  Recently, the commerce ministry imposed a minimum export price of $850 per tonne of onions. The state-run MMTC Ltd has been asked to import the bulb in order to control retail prices, which have crossed Rs 50/kg in major metros.
•  These moves have angered onion growers, who say that the government showed no such enthusiasm when prices were consistently low for much of the last three years.
•  Suppressing food prices through artificial means is not the way to meet the RBI’s inflation target.
•  Between December 2018 and August 2019, annual WPI inflation for food articles has moved up from -0.42% to 7.67%. Retail food inflation is still only 2.99%. It should catch up with the trend in wholesale prices. ‘
•  The supply disruptions and crop loss from excess monsoon rains — could lead to some rising prices. This is seen in pulses, maize, jowar, and soybean.
•  The prices are recovering from lows and some are trading below their official minimum support prices.
•  The government should not invoke the Essential Commodities Act or ban exports or permit duty-free imports.

Conclusion

•  Boosting farm incomes is more likely to guarantee an economic recovery than the slashing of interest rates.

Prelims Questions:

Q.1) Common Services Centers (CSC) scheme is one of the mission mode projects under:
(a) Digital India Program
(b) Ayushman Bharat Yojana
(c) Skill India Mission
(d) Atal Pension Yojana

Answer: A
Mains Questions:
Q.1) To what extent boosting farm incomes is essential for economic recovery. How government must avoid containing food inflation at all costs?