Food for Thought for Modis Inflation Problems by Joseph Mathew - Article Example

Article Review: Food for Thought for Modi’s Inflation Problems by Joseph Mathew This article is a review of the steps that should be focused on to curb the inflation problem in India. The author suggests that the government should focus on agricultural development and growth in order to help tackle inflation. It suggests that the new administration should change the distorted agricultural market, reform agricultural input sector and the marketing practices. This, it says should be the priority before embarking on creating business good business climate to promote investment. I do not agree with the opinion of the author that the new regime should put more emphasis on the agricultural sector transformation and not on improving business climate. The argument that more focus should be put on agricultural sector rather than in improving business environment is questionable since improving business climate and encouraging agriculture on the market basis are perfectly compatible. In addition, food prices in and inflation are two different things. To deal with inflation, the new Indian government needs to keep a tight rein on its spending and monetary policies. This is vital in the battle against economic fall as well as inflation. Moreover the government needs to strive to maintain micro economic and financial stability in the current challenging microeconomic landscape in the country. Creation of good business environment and transforming the agricultural sector can then be concurrently be used to support the monetary policies. Capital investment contributes almost 38% to the Indian economy. Several infrastructure projects have stagnated in India due to lack of growth in the capital investment sector in India. This clearly indicates how heavily the economy of India relies on revenue that is got from private investment. The stagnation of these projects has impacted on the economy negatively because of inflated costs. To solve this problem, it will be prudent for the government to create conducive environment for investment. This can be done through encouraging small as well as big private investments in the country. The author of the article argues that restructuring of the agricultural sector is necessary to help curb inflation. Even though the sector requires restructuring, it should be noted that food prices in the agricultural sector and inflation are completely different. Therefore, restructuring of the sector cannot be used as the primary avenue for curbing inflation. However, the restructuring is necessary as it will help build the economy of India in the long run. The author criticizes the MSP and proposes deregulation of the agricultural market in India Despite the fact that deregulation of the agricultural market will for sure have benefits, a critical look at the current state of the Indian economy reveals that small scale farmers might be victims of this process. The deregulation might make small scale farmers who are the majority to be captives of industries that buy their farm produce. This has been evidenced in the deregulation of the sugar cane sector in India that has resulted in cane growers becoming captives of the millers. The prices of the agricultural produce will be determined by the large scale buyers hence resulting in monopoly in the agricultural market. Even though the government should not limit the buyers like cane millers from buying produce from specific reserves, the argument of the government not setting minimum prices will for sure make the farmers vulnerable. The uncontrolled prices can lead to reduced earnings from farm produce hence lowering rural income. Reduced rural income will mean that the farmers, who are the majority in India, will not be able to pay for their needs. The author states that the agricultural sector has witnessed declining growth and food prices have gone up because of the structure of the agricultural sector. This is very true because the hoarding practices and the un-procedural government involvement have impacted negatively on the sector. Since improving business climate and restructuring the agricultural sector are fully compatible, the government can borrow some suggestions from the author’s opinion on how to restructure the agricultural sector but it should at the same time encourage investment by creating an enabling environment. The first step according to author is correcting the distorted agricultural market in India (Joseph 4). The author identifies the distorted minimum support price system in India that is used to enforce crop prices above the cost of certain crops and lower cost of others as one of the major challenges in the Indian market. He argues that the system is inappropriate because the government has used it to help them procure food supplies (Joseph 4). It is an agreeable fact that the government should not use the enforced prices to buy food for the reserves. However, the restructuring should be done in a way that does not make the big players in the agricultural sector have monopoly over the smaller players. In his second suggestion the author calls for reforms in agricultural input. The author goes on to state that the reforms that should take place in the agriculture sector to help tackle inflation should occur both at the back end and the front end (Joseph 6). It is worth noting that the author’s suggestion that incentives should be in form of cash might not be the best solution considering India’s current economic situation .The government of India is already operating on a deficit budget. Giving subsidies to all small scale farmers in form of cash might force the government to spend what is does not have. This might not be the best solution because as stated earlier, the government should try to cut on its spending to curb inflation. I fully agree that the agricultural sector in India needs reforms. The government therefore needs to sort out the distorted market and restructure the agricultural input market as this will be beneficial to the economy. However, the restructuring of the agricultural sector cannot be the primary focus for curbing the inflation in the country. What is needed is tight reign on spending and monetary policy. Transforming the agricultural sector and improving the business climate can also be done at the same time to help grow the economy. Works Cited Barss, Eric.”The New Indian Government: Prospects for Economic Stabilization.” iAffairs CANADA. (2014). Web. 9 Jan, 2014.Retrieved from http://www.iaffairscanada.com/2014/new-indian-government-prospects-for-economic- stabilization Joseph, Mathew. (2014). Food for Thought for Modi’s Inflation Problems. EASTASIAFORUM. (2014).Web.3 June 2014. Retrieved from; http://www.eastasiaforum.org/2014/06/03/food-for-thought-on-modis-inflation- problem/ Read More