Taming the Inflation: IS IT POSSIBLE?
Inflation is raging; stock prices are plunging; everyone is worried. What has caused the inflation? And can it be tamed?
First, of course, the phenomenal rise of worldwide oil prices. Not because oil consumption has jumped all of a sudden but because speculators have become active in the ‘oil futures’ market. We cannot ban speculation or ‘future trading’. But we can insulate ourselves from the oil shock.
To achieve this, we should immediately allow the rupee to become stronger. We should revalue the rupee. That will lower the price of oil to the Indian consumer, making a big dent in inflation. Any side effects? Obviously, exports will get affected. But government can help exporters in various ways. China has been doing it for years. For example, the Chinese government allots a piece of land to a loss-making exporter who makes money by developing the land commercially.
We should also curtail our energy consumption. We consume three times more energy, as percentage of GDP, than the world average. There are ways to cut down on energy consumption. Gujarat has shown that raising the groundwater table drastically reduces the energy required for agricultural pumping. Next is the transport sector. The railways consume only one-third the energy needed to move one ton of material over a kilometre by road. Waterways consume even less.
We should use these alternative means of transport more intensively. It is time we develop energy from non-oil sources. The private sector should be encouraged to generate energy from renewable sources like solar, wind, waves, tides, geothermal, hydro, biomass and feed it into the grid. For this they should be offered an attractive price per unit.
Second, while we should welcome foreign investment in manufacturing, we must discourage it in sectors like real estate. And why do we need dollars to keep flowing into India? We have already built a foreign exchange reserve of $300 billion which is enough to meet our import needs for the next two years.
China has an import cover of 11 months and Germany and the US for fewer months. India’s reserves have swollen due to capital inflows rather than exports exceeding imports or profit earned in exports. These inflows are not ‘wealth’. They are liabi-lities.
For developing our foreign exchange reserve we have exported our wealth and got dollars which, in turn, we invested in US treasury bonds thereby financing their infrastructure and economy, not ours. On these treasury bonds we earn a meagre 3 per cent return whereas the government borrows money from market at 8 per cent, losing $15 billion every year which is equal to half the fiscal deficit of the Centre.
nice work it should be done