The balloon of inflation and a small pin

While I was reading about inflation, the majorly affected items are food and related products. The decline in the production of agricultural sector is the main reason for this. No matter how much subsidy you provide, how much base rates you decide, unless a technology revolution comes up in the agri sector, the production is not going to pick up.

In terms of agricultural contribution, the following states in India are the most developed states:
Punjab
Uttar Pradesh
Madhya Pradesh
Haryana
Bihar
Andhra Pradesh
Maharashtra
West Bengal

Which means, the rice growing states are lagging behind in technology part of it. [Well, West Bengal produces rice but consumes most of it there itself.] This is exactly why the wheat eaters are not as affected as the rice eaters down south. I found the break up of effect in a major magazine I went through recently.
It is not the supply that has gone up. Food is always a necessity. The growing population makes it evident that the demand is increasing. But the methods employed to produce is still the old 'pop n mom and an acre' way. The yield per hectare is lower than the world average, for India.
Increasing the production will settle the problem of increasing food prices. I know it is a basic fact. But it seems nobody sees it for now. At least not the way the government is trying to curb inflation. Increasing REPO rate will only burden banks and the other public thereby. It will not make any difference to the inflation rates.
Already 43% of personal disposable income of an average Indian is used up for buying food. How much more will we spend for it?

Tail-End [Please read this as Talent :P ] : Inflation is like a balloon. The more air the economy has the higher it floats. Fill it water, it holds more and stays down.

References : 
Wikipedia
Business Today
The Economist

Comments

Arun said…
mm.. u hav analysed it correctly.. RBI's moves try to restrict cash availibility and thereby inflation. But what is actually happening is that interest rate hikes affects credit availibility for farmers too and also increase the chance of their loans becoming NPAs.

Ur solution is also ryt - Increased Production. Give farmers easy access to credit, crop insurance etc instead of giving them freebies through NREGA. (NREGA also causes non availibility of labour for agriculture in states like Kerala)
October 31, 2011 at 12:31 AM
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