So the prognosis is we’re heading for double-digit inflation, if we’re not already there – considering it’s the WPI as opposed to the CPI we’re talking about, and the fact that the oil price hike effect has not been factored in. This means a negative rate of return already for many small savers and a double whammy for many of us, given oil’s relentless northwards climb – and the fact that it constitutes 30% of our import bill – and the fact that if food-grains have to be imported, we’re impacted by both higher prices and a falling rupee. (The Sensex, off a whopping 25%, means the dollars are not flowing in as easily….another problem for the rupee)

It’s the classic inflation versus growth scenario, and frankly, no one has a clue about what to do. The RBI went and raised the repo rate 25 bps, to 8%, but one is not sure if (a) that’s enough and (b) if it’s an effective tool. Inflation in our case is primarily because of supply side problems and demand outstripping supply. What can anyone do in these circumstances? There are enough structural weaknesses still in the Indian economy to prevent this being fixed in a hurry, so supply-side constraints will remain. And how do you curtail demand, particularly for primary items and oil? Do people eat less? Do we use less oil? Easy to say yes, but that’s a load of crock. It’s not as if most Indians are an overfed lot. And there isn’t really any public transport in India. So what is anyone going to do? There are no easy solutions in life. If the problem is inadequate supply and there are bottlenecks to ensure that supply cannot keep pace, then the equilibrating mechanism of a price rice will ensure demand cools off. Trouble is, try explaining this to families that can’t afford to buy sugar, or wheat/rice, or greens for their kids. There will be political and social repercussions and let’s not forget it’s an election year. If fuel prices were actually benchmarked internationally, a good many people would be forced to stop using two-wheelers and cars. Do they have an alternative?

The markets are beginning to factor in another rate increase (probably coupled with a CRR hike) by the RBI, as evident from falling bond prices. So it’s clear the government and the RBI have decided to kill inflation at the expense of growth. I’m just not sure they have the right weapons in their armoury, or if anything can be done. And any solution like this is sure to increase the fiscal deficit, which is already burdened by subsidies, oil bonds, loan write-offs and the pay-commission recommendations. Lower growth will also mean lower revenue collections for the government. So we’re looking at inflation not really being tamed, a deceleration in growth and a burgeoning fiscal deficit. In other words, we’re fucked.

I love spreading good cheer.

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So after George Bush wanting Indians and Chinese to eat less (boys, y’all can do with one meal a day now, y’hear me..), it’s the turn of the World Bank to blame India for rising food prices in South Asia (don’t miss the typo in the headline). The mandarins of the World Bank blame export restrictions in India for driving up grain prices, especially those of rice. Ok, at least the World Bank’s view is backed by sound economic logic, and I would assume that they would have data to validate that claim.

Of course, it takes the US Under-Secretary of Commerce to take that cue and go on to warp economic theory – he said while export bans are designed to increase short-term food security, (by) imposing the restrictions these policies make the situation worse. Export restrictions take food off the global market, drive prices higher and discourage farmers from investing in future production, he added.

So, higher prices of grains discourage farmers from investing in future production.

We all know who’s getting the Nobel in Economics this year!

PS: I’m glad that India has taken this step. For the poor in India – urban and rural – the price of food has become prohibitive. Drastic steps were required.

PPS: And for all the people out there telling India to lift export curbs on grains, how about turning some of that preaching in OPEC’s direction? I mean, will their citizens starve if more oil flooded the market?

Damn, I hate sounding jingoistic, but these sanctimonious bastards really piss me off.