Mr. T. N. Ninan’s Weekend Rumination on 22nd October 2011 left me zapped. I could not figure out what he was driving at. His column is here. He seems to suggest that the high inflation is a reflection of the government’s success in rural India!
If the rural sector benefited, that is fine. If productivity in rural India exceeded the growth in wages, this would not be happening. So, has he measured productivity improvement – for land and for labour in rural and/or agricultural India?
Second, how does one establish a causal linkage between government policies and agricultural production? Has he controlled for other factors? What if the monsoons had failed miserably?
Third, is it the right thing to raise procurement prices for rice and wheat? Is that a sustainable situation for the country and its water resources? Would the farmers have made better choices had they been allowed to receive global market signals unimpeded? Would that have raised agricultural productivity even more and in the right areas?
Fourth, the downside of all this is rising interest rates (forget about RBI, the market would have done it itself for long-term government bonds if there was a genuine market for it) because of government deficits.
Does it have nothing to do with inflation?
I am totally zapped.