Inflation in India

The Indian government points to China and Zimbabwe, and says inflation is a global problem...

WITH INFLATION SURGING in China, can India be far behind? This is the reasoning that India's ruling Congress party has given, writes Mohit Khanna for Commodity Online.

   On Monday, worried over rising commodity prices, the Manmohan Singh government took several initiatives to rein in inflation. They included a duty cut on edible oils and a ban on non-basmati rice.

   The Congress-led coalition government is obviously worried that rising inflation at this juncture of the year – when the country is heading for the general elections – spells bad omen for the ruling alliance.

   But the Congress party itself has come in full support of government, arguing that inflation is a global phenomenon and India should not be overly frightened about rising prices.

   Congress Media Department Chairman M. Veerappa Moily cited China's example. "In China, the inflation is at a 12-year high. China's inflation rate of 8.7% for February this year has been its highest in the last 12 years with the country witnessing a staggering rise in pork and vegetable prices."

   Similarly, the Congress notes that the staggering inflation rate in Zimbabwe scaled new heights last week and currently stands at 66,212.3%.

   According to Moily, the inflation pattern in China and India is similar. "In both the countries, it is food-led inflation," he pointed out.

   Moily said that while the price of food commodities in China has risen by 63.4%, there has been a sizable increase in the price of food, fats and oils and grain in all low- and middle-income countries in the six months ending February 2008.

   So compared to what is happening to inflation in China and Zimbabwe, is the 6% inflation in India a big problem? "No, not at all," argued Moily, saying if the rising prices in commodities go up further the Congress party would ask the government to ban future trading in more farm items.

   It was around this time when Indian inflation last had a similar upward run that we saw a political backlash, especially from the Left parties. Forced by high inflation, the government banned futures trading in essential commodities like wheat, rice, urad and dal.

   Now that inflation is going up again, will the government ban futures trading in more agri' commodities? Such a move can not be ruled out. The Left parties have now asked the government to bring down prices of essential commodities within a fortnight.