Friday, April 11, 2008

[mukto-mona] Political parties and the Government, both sides of the Ruling Hegemony are playing for the gallery and it won`t change the situation! We have to feel the heat of Inflation. Only we!

Political parties and the Government, both sides of the Ruling Hegemony are playing for the gallery and it won`t change the situation! We have to feel the heat of Inflation. Only we!

You should remeber the media hype on Electioneering Budgets!
What happened?
Are the common consumers relieved a little bit?
What happns to be the affairs of Indian economy?
The only scale entitled for shining India, the Sensex is falling apart.

No Family planning needed as starvation rates are so high! Medical care is privatised and no one without purchasing capacity may afford treatment nowadays. So happens to be the condition of education and employment. No way for sustaining onself these days. The ruling class is concerned for only previleged classes as security forces and government employees! Cremy layer is entertained at every level as political reservation continues with an infinite brokerproduction. SEZ drive launced Enblock Genocide of Indigenous people.

Palash Biswas

Contact: Palash C Biswas, C/O Mrs Arati Roy, Gosto Kanan, Sodepur, Kolkata- 700110, India. Phone: 91-033-25659551
Email: palashbiswaskl@gmail.com

Inflation

From Wikipedia, the free encyclopedia

Inflation is a rise in the general level of prices over time. It may also refer to a rise in the prices of a specific set of goods or services. In either case, it is measured as the percentage rate of change of a price index.^[1]

Mainstream economists believe that high rates of inflation are caused by high rates of growth of the money supply.^[2] Views on the factors that determine moderate rates of inflation are more varied: changes in inflation are sometimes attributed to fluctuations in real demand for goods and services or in available supplies (i.e. changes in scarcity), and sometimes to changes in the supply or demand for money. In the mid-twentieth century, two camps disagreed strongly on the main causes of inflation at moderate rates: the "monetarists" argued that money supply dominated all other factors in determining inflation, while "Keynesians" argued that real demand was often more important than changes in the money supply.

There are many measures of inflation. For example, different price indices can be used to measure changes in prices that affect different people. Two widely known indices for which inflation rates are reported in many countries are the Consumer Price Index (CPI), which measures consumer prices, and the GDP deflator, which measures price variations associated with domestic production of goods and services.

According to official figures, inflation has touched a 40-month high of 7.41 per cent for the week ended March 29.
The Left parties today lashed out at the UPA government for its "failure" to check rising prices saying it stood helpless before the "monster of market forces" which was responsible for this situation.

I landed in Kolkata just after the demise of USSR. having been involved in nationality movements in Uttarakhand , jharkhand and chhattishgargh I became aware of the dangers ahead as the Indian nation never addressed the nationality question despite AFSPA reigning in Jammu and kashmir with entire North East including Assam. Moreover, continuous refugee influx accross the border and continuous minority persecution in East Bengal endangered the very existence of my community, the dalit Bengali Partition Victim refugees from erstwhile east Bengal and resettled countrywide deprived of citizenship, human rights and civil rights. I wanted to go back to roots. I opted for west Bengal leaving behind my North india base.

I have been dealing with the same people all these years for my Ration and essential commodities. I have detailed price lists since 1991. I don`t want to go to details. I am just asking all those persons who have monthly accounts with general stores and Kirana store or Mudikhana. Please analyse the price hyke syastematically with your personal and family experiencs. The game began with Neoliberal Open Market taking over traditional Market and Production system. The things changed dramatically. Welfare state vanished like a wild dream. public distribution ended. No market control. No Consumer safety. No quality or Price control. All these years, the Budget became quite irrelevant to the objective situation faced by Common man. Common Men deprived of purchasing power, displaced and uprooted from livelihood and native places were brutally ousted of the Sovereign market. sovereign Market took over the State power. MNCs are ruling.

I visted the local vegetable market today. To my awe, I saw every commodity price multiplied! Please see your shopping list and compare the rates with what you paid last week.

So it is a Budget looking on Vote Bank!

Political parties and the Government, both sides of the Ruling Hegemony are playing for the gallery and it won`t change the situation! We have to feel the heat of Inflation. Only we!

"The government stands helpless before the monster of market forces," CPI National Secretary D Raja said here. He was joined by CPI(M) Politburo member Sitaram Yechury who said the Left would go to the people if the government did not take "relevant steps" to control inflation..

Reacting to Science and Technology Minister Kapil Sibal's statement terming the inflation as a global phenomenon, Raja said "this is a very callous attitude. The government should have anticipated the situation and taken adequate long and short term measures suggested by the Left parties much earlier".

Sibal had said that the government did not have a "magic wand" to bring down inflation, which was a global phenomenon.

Yechury said that the Left parties had sent detailed notes to the government on controlling prices. "Of course we shared our concerns (with government) ...The point is to make the government take the relevant steps and that is what we wanted them to do and that is what we conveyed to them." "If they are not heeding, then we will go to the people," he said.

Terming soaring inflation rate as a global phenomenon, the government today said that it has no "magic wand" to bring it down immediately though it is taking and will take all possible steps to contain price rise.

"Government has no magic wand to bring down inflation which is now a global phenomenon. Due to rise in prices worldwide, it has become rather an import inflation," Minister of Earth, Science and Technology Kapil Sibal told reporters while briefing the mediapersons after the Cabinet meeting.

Referring to World Bank figures, Sibal said that prices of agricultural commodities have gone up by 73 per cent in the international market during the period between August 2007 to March 2008 period.

It included 88 per cent rise in prices of food products, followed by 74 per cent rise in wheat prices, 72 per cent in rice prices, 71 per cent in fat and oil prices and 35 per cent increase in sugar prices, he said.

"Inflation is at a very high level in all emerging markets such as China (8.7 per cent), Russia (11.9 per cent), Argentina (7.3 per cent) and Turkey (8.1 per cent)," he said, adding the government was taking all necessary steps to contain inflation.

Elaborating on the measures taken by the government to contain inflation, Sibal said state governments have been asked to put limits on stocks of foodgrain.

Ruling out an increase subsidies, he said efforts were being made to contain prices through duty cuts and other measures. The poor people were supported through public distribution system, he added.
The Government today admitted that rising food prices would make the task of containing inflation a more difficult exercise and may hurt economic growth and reforms process, but ruled out any "blind controls" to rein in the increasing rates.

"Efforts to promote reforms and more open economies would be derailed in the face of persistent food shortages and rising food prices...A steep rise in food prices will make inflation control more difficult and can thereby hurt the cause of macro economic stability," the Prime Minister Dr. Manmohan Singh said at Global Agro Industries Forum here.

"The constituency for economic reforms, so necessary for growth, would also diminish. Pressures would mount for restrictive trade practices," he added.

Wholesale prices-based inflation has already touched over a three-year high of seven per cent and various think- tanks-- IMF, ADB and Prime Minister's Advisory Council-- have projected a moderation in economic growth for this fiscal.

However, Singh said the situation cannot be resolved by returning to an era of "blind controls" and by depressing agriculture's terms of trade as it would hurt farmers' welfare as well as the long-term growth of economy.

"We in India too are deeply concerned about rising global commodity and food prices. Sharply rising food prices can slow down poverty alleviation, impede economic growth and retard employment generation," he said.

While this will harm global economy in general, developing world will be "seriously hurt", Singh said, after receiving the Agricola Award by FAO for his contribution to the farm and social sector.

He said increasing global shift to bio-fuels in the face of galloping oil prices is making the situation of food shortages more complex.

The Prime Minister also said the rising food prices can slow down poverty alleviation and retard employment generation. "We in the developing world will be seriously hurt by it. Efforts to promote reforms and more open economies would be derailed in the face of persistent food shortages and food prices," Singh said He said the world as whole is facing a situation where rising demand for food is not being matched with a similar supply side response.

He said growing demand for bio-fuels due to galloping oil prices is making the situation of food shortages more complex.

The Prime Minister also emphasised on better targeting of subsidies for rural households.

"Farmers and workers seek income, not subsidies.. While some subsidies are useful and helpful, especially when targeted to those in distress, what our rural households seek is higher investment in land development, in water management, in seed technologies, in output storage and marketing," Singh said.

The Prime Minister said the problem of rising demand for food not being met by the supply side is not confined to India alone and the entire world is also facing such a situation. Referring to the growing demand for bio-fuels, he said: "The situation is becoming more complex due to the alternative uses being developed for food crops." It is particularly worrisome that the new economics of biofuels is encouraging a shift of land away from food crops, he said and added that for the first time there is a direct linkage between oil prices and food prices.

"Food markets have got interlinked to oil markets, making food policy-making complex and uncertain," Singh noted.

The Prime Minister termed the prospect of food shortages and rising food prices as "most important challenges" and urged the world community to tackle this problem head-on.

"We need a second green revolution. We need new technologies, new organisational structures, new institutional responses and above all a new compact between farmers, technologists, scientists, administrators, businesses, bankers and consumers," he said.

The Prime Minister said that welfare of farming community and livelihood of agricultural workers would be better ensured through higher investment in rural infrastructure and farm development.

"Farmers and workers seek incomes, not subsidies.. They seek markets and employment, not hand-outs," he said.

Singh expressed concern over the adverse impact of climate change and global warming on land productivity and water availability and called for concerted global action to deal with the problem.

"We need more equitable, efficient and rational systems and institutions for utilisation of scarce water resources," he said.

The Prime Minister pointed out that small and marginal farms have become an unviable proposition, which, he said, need to be made viable. He sought greater cooperation from donor agencies like International Fund for Agricultural Development (IFAD) to provide long-term solutions to the problems faced by small and marginal farmers and particularly for poverty alleviation, risk mitigation and access to finance.

"Collectivisation, corporatisation and land consolidation through land alienation are neither possible nor socially desirable," he noted.

Prime Minister said some of the solutions to the problems of Indian agriculture are to be found outside agriculture.

"In the long run, we have to reduce the pressure of population dependent on agriculture," he said, adding labour- intensive industrialisation was needed to absorb the surplus workforce from rural areas.

He said the Indian food processing sector should target generating new employment besides increasing farmers' income.

"In many developed countries, the strategy of food processing and agro-industries was focused essentially on increasing farmers' incomes without a focus on generating rural employment," Singh noted.

Launching an attack on the BJP, Railway Minister Lalu Prasad today said the increase in prices was the "handiwork" of traders sponsored by the saffron party.

Prasad said there has been a sudden increase in prices after the submission of the report of the 6th Pay Commission and this should be investigated.

"Why have prices gone up all of a sudden after the report of the pay commission came out? There is no shortage of commodities and yet the consumers have to pay more. This is the handiwork of BJP-sponsored traders," he told reporters here.

"This is being done so that we do not do well in elections," Prasad said.

Further criticising the BJP, he said while the saffron party has been attacking the Government over price rise, the states that are under its rule have failed to take steps to control the prices of essential commodities.

"The Centre had empowered the states to take steps to control prices of essential commodities. Only five states have done it so far. And none of the BJP-ruled states have done it," Prasad said.

India inflation nears 4 year high

By Sunil Raman
BBC News

Watermelons at a wholesale fruit market in India

The government has said it will focus on capping price growth

Inflation in India climbed to its highest level in March for almost four years driven by rising metal, food and oil prices, official figures show.

The annual rate of consumer price growth was 7.4% last month, the highest rate since November 2004.

Concerned by rising food prices, India last week announced a ban on exports of non-basmati rice and removed duties on imports of crude edible oils.

On Friday, it banned cement exports and withdrew concessions for steel.

Trade Minister Kamal Nath said inflation control was a priority and more measures would follow.

Poverty measures

Unlike many countries India calculates inflation on factory gate prices or wholesale prices.

Prices paid by consumers in retail shops are higher and the issue of price growth and inflation has become a become sticky political problem with six Indian states going to polls in coming months.

The inflation figures came a day after Prime Minister Manmohan Singh said sharply rising food prices could "slow down poverty alleviation, impede economic growth and retard employment generation".

Officials in the Farm Ministry told the BBC that they expect inflation to come under control by the end of April when the wheat harvest picks up.

A harvest of about 75 million tonnes of wheat has been estimated..

Reports of a good harvest in Australia will further dampen world prices, which have been under pressure after extreme weather conditions damaged crops.

The Farm Ministry said that the government had ample rice stocks, and any increase in prices was a result of rice exporting nations announcing a ban.

There were no plans to provide rice at a lower cost to Sri Lanka or African nations..

Ministry officials said that in an election year the government's popularity could be hit by high prices or the perception that prices had risen.

Growing steadily

Communist parties that support the federal government in parliament have again demanded a ban on futures trading in commodities in an effort to keep a limit on price increases..

Sitaram Yechury of the Communist Party of India said that last year the government had banned futures trading in rice, wheat and pulses because of pressure from their parliamentary group.

That move, he said, had helped to check prices then.

But fears of a major economic slowdown have been belied by new industrial production figures out on Friday. Industrial production grew at 8.6% in February 2008 compared with 11% in February 2007.

The government has also revised the January industrial production figure to 5.8%. For the first 11 months of the last fiscal year, industrial growth was 8.7% compared with 11.2% the previous year.

Manufacturing has shown some growth and there has been a slight decline in consumer goods sector in January.

Rapid inflation threatens India's boom times

http://business.timesonline.co.uk/tol/business/economics/article3729349.ece

Rhys Blakely, Bombay

Inflation in India has soared to its fastest pace in more than three years, raising the prospect of a tighter monetary policy that would jeopardise the country's fading economic renaissance.

The figures, which are deeply embarrassing to the Indian government and were pounced on by opposition politicians today, come as soaring prices of foodstuffs and industrial raw materials remain at historical highs, fanning inflation across Asia.

Indian wholesale prices rose at a 7.4 per cent annual pace in the week to March 29, up from 7 per cent in the previous week and wrong-footing economists' predictions for a flat reading. As recently as the first week of February the gauge stood at just 4 per cent, well below the central bank's 5 per cent comfort threshold.

In China, Indonesia and Pakistan inflation rates are above 8 per cent. Consumer prices in Colombo, the capital of Sri Lanka, have risen about 24 per cent in the past year, according to Bloomberg, the financial data provider.

Oil touched a record $112.21 (£56.9) a barrel this week in New York. Wheat prices have more than doubled in Chicago over the past year, and touched a record high of $13.495 a bushel in late February.

Rice, a staple food across South Asia, has increased in price by more than 40 per cent in some markets since January – one of the factors that prompted the World Bank to warn this week that more than 30 countries face the prospect of food riots.

The Indian government, which must call a general election before next May, is hugely sensitive to the rising costs of basic goods. Even small rises in food hit India's army of poor voters hard.

In an effort to temper price rises it has already cut import duties on edible oils and banned the export of pulses and most types of rice - fiscal measures that are providing a fillip for global market prices.

The government has also leaned heavily on steel manufacturers, pressing them into making "voluntary" press cuts or risk mandatory price caps. Today, it withdrew export incentives for goods including cement.

Economists now expect a further hike in the cash reserve ratio - the proportion of deposits commercial lenders need to place with the central bank - before the end of April.

Tighter monetary policy has already contributed to a deceleration in India's economic growth to an 8.4 per cent annual pace in the three months to December, down from an 18-year high of 9.6 per cent in the year to March 31, 2007.

April 11, 2008

Inflation in India is running at a three year high.

Permalink: Inflation in India is running at a three year high. by Peter Charalambous

http://www.investmentmarkets.co.uk/20080411-1883.html

Inflation in India is running at a three year high.

India's inflation has accelerated which has raised the cause for concern that the central bank may increase interest rates as government bonds fell.

Wholesale food prices have surged by 7.41 percent from last year and it is the rise in commodities and food costs that has forced the Asian governments to find ways to freeze the price hikes.

The Indian government is having to scrap import tax on oils and maize as well as banning all exports of rice and pulses due to the increase in food prices.

Oil is trading at the astronomical price of $112.21, whilst wheat is trading at $13.495 a bushel which is almost double the price from last year.

As a result the central bank may order lenders to make more money available, and the government cannot rule out an increase in the cash reserve ratio.

The focus on monetary policy will most likely be on liquidity management so as to stop this influencing inflation.

During the week India has conducted the biggest sale of debt since this January so as to reduce the supply of money.

The Indian central bank is subsequently planning to sell 230 billion rupees of bonds this week, as well as 90 billion rupees of securities in order to further reduce the money supply in the banking system.

So far key policy rates have been lifted nine times in order to curb inflationary pressures.

Inflation in India

Shooting the messenger

Apr 10th 2008 | DELHI
From The Economist print edition

The Indian government's knee-jerk response to inflation is as worrying as the rising prices

IN COLONIAL times, the Coronation Building in old Delhi was one of the city's most prestigious hotels. Today, it is home to a commodity-futures market. But you would not know it. The Rajdhani Oil and Oilseeds Exchange is hidden among a cluster of small shops and peopled by men in kurta pyjamas, their hair dyed with henna, reclining in the afternoon heat under rusted fans. Over an ageing intercom, they take orders to buy and sell mustard seed and jaggery for delivery one or two months hence. The day's opening and closing prices are chalked on a blackboard.

The blackboard shows that prices of the two commodities have fallen in recent weeks. This will come as a relief to India's policymakers, who are frantically seeking to suppress a nasty bout of commodity-price inflation. On April 4th the Ministry of Commerce and Industry revealed that wholesale-price inflation, the measure most closely watched by the Reserve Bank of India (RBI), the central bank, rose to 7% in the 12 months to March 22nd, its highest rate since December 2004. This price pressure is worrying. But the government's panicked response to it is even more so.

Behind the jump in inflation were higher prices for fuel, food (including edible oils) and metals. The price of iron ore leapt by 46%. This has spooked the government, which faces elections in several big states as well as a national poll before next spring. In response, it has cut import duties on edible oils and banned the export of pulses and rice (except for basmati rice). It even briefly banned the export of edible oils, such as coconut oil, much to the chagrin of Keralite emigrants to the Gulf, who swear by the stuff to keep their hair black and their joints flexible.

Steelmakers in particular have felt the sharp edge of the government's resolve. The Steel Authority of India (SAIL), a state-owned steelmaker, boasts that "there's a little bit of SAIL in everybody's life", a slogan that runs above pictures of metal bridges, pipes, jugs and even dog-food bowls. After prices rose by more than 20% in the first three months of the year, everybody's life became a bit dearer. Carmakers and scooter-makers protested to the government. Dog-owners no doubt joined them in spirit.

The government threatened to add steel to its list of 15 "essential commodities", which would allow it to dictate the production and distribution of the alloy. In response, steelmakers "voluntarily" agreed to cut the prices of steel bars used in construction and the corrugated sheets that poor households use for roofing. But steelmakers complain that they are merely passing on the rising costs of coke and iron ore. They fear being caught between "the two prongs of a pincer", according to the Indian Steel Alliance, an industry group.

Commodity traders, such as the ones reclining in the Coronation Building, fear they may be next in line. Last year the government banned futures trading in two types of bean, rice and wheat, arguing that speculators were driving up prices, beyond what the fundamentals would dictate. Some in the leftist parties, on whose support the government relies, now argue it should extend the ban to other commodities, such as edible oils and perhaps even iron and steel.

This would be like "shooting the messenger", argues B.C. Khatua, chairman of the Forward Markets Commission, which regulates futures exchanges. Before they were shut down, he points out, the futures markets conveyed the message that prices of wheat and rice would continue to rise. Sure enough, that is what happened.

Banning futures trading would do little to curb prices, especially for commodities like edible oils that are heavily imported. But it would arrest the development of India's financial system, which is finally growing more sophisticated. Since 2003, the government has allowed trading in future contracts for many commodities. One of the two main exchanges, the Multi Commodity Exchange, averages volumes of over $3 billion a day. The Rajdhani exchange turns over about $20m a month.

Great hopes for such markets were expressed this week in a report by a 12-man committee on financial-sector reform, appointed by the planning commission, and led by Raghuram Rajan, now of the Chicago Graduate School of Business, and formerly chief economist of the IMF. It laments "the knee-jerk reaction to ban [markets] or intervene in them whenever they send unpleasant messages."

The futures market provides farmers with a sneak preview of the prices they will face in the months ahead, which should allow them to make an informed decision about what to sow. In principle, futures contracts should also allow farmers to lock in a price for their crops, insulating them from the vagaries of the spot market. At the moment, farmers are too small to participate in the market directly. But Mr Rajan's report suggests that small banks could aggregate the demands of farmers up to a practical size.

"Just as it is counter-intuitive to steer in the direction of the skid", Jagdish Bhagwati of Columbia University once wrote, "it is difficult to persuade the layman" that the best solution to scarcity is a market price, which encourages supply and discourages demand. As Bajrang Lal Goyal, a trader who joined the Rajdhani exchange 40 years ago, points out, India's winter crop is just days away from hitting the market. If the politicians who bash the futures market could be bothered to look at the message it is conveying, they would see that the prices of several sensitive commodities are already on their way down. Just in time, that is, for the elections.
Global inflation and India

http://www.thehindubusinessline.com/2008/04/08/stories/2008040850360900.htm

Most analyses of accelerating inflation in India emphasise the role of "imported inflation" in driving Indian prices upwards. In this edition of Macroscan, C. P. Chandrasekhar and Jayati Ghosh examine the trends in global markets that influence domestic price movements and their implications.

With the annual rate of inflation in India having touched 7 per cent on a point-to-point basis during the week-ending March 22, 2008, the search for policies to combat the price rise has begun. One factor seen as making that search difficult is the ostensible role of "imported inflation" in driving the rise in domestic prices.

There is an obvious reason why such an argument arises. Among the products primarily responsible for the current inflation are food products of different kinds, including cereals, intermediates like metals and the universal intermediate, oil.

Of these, the difficulties that high and rising levels of oil prices pose have been known for some time now. Price movements for the two varieties of crude that enter India's import basket (Chart 1) show that since May 2003 international prices have, despite fluctuations, been on a continuous rise. In the event the prices per barrel of these varieties have moved from less than $25 in May 2003 to close to or well above $100 today.

Real price of oil

This has changed one feature of the oil price scenario that held during much of the last two decades. During those years, despite high nominal prices, the real price of oil (adjusted for increases in the general price level) was far lower than that which prevailed during the 1970s. As Chart 2 shows, when measured by the price-deflated refiner acquisition cost of imported oil in the US, in the years since 1974 the real price of oil was higher than that in 2006 only during a brief period between 1980 and 1982. Since 2006, nominal oil prices having risen further at rates much higher than the average level of prices.

As a result, oil producers are regaining the real price benefits they garnered during the 1979-81 shock. According to one estimate, in terms of current prices, the late 1970s-early 1980s peak in oil prices works out to $100-110 a barrel. That is a figure that we are fast approaching.

Underlying the buoyancy in prices is the closing gap between global petroleum demand and supply at a time when the spare capacity is more or less fully utilised. Much of the increase in demand is coming from China, but that is affecting stockpiles everywhere. This trend, combined with the uncertainty in West Asia resulting from the occupation of Iraq and the standoff in Iran, has created a situation where any destabilising influence — such as political uncertainty and attacks on the oil supply chain in Nigeria — triggers a sharp rise in prices.

What needs noting, however, is that prices are where they are because speculators have exploited these fundamentals. It is known that energy markets have attracted substantial financial investor interest since 2004, but especially after the recent decline in stock markets and in the value of the dollar. Investors in search of new investment targets have moved into speculative investments in commodities in general and oil in particular. The Organisation of the Petroleum Exporting Countries (OPEC), which is normally held responsible for all oil price increases, has repeatedly asserted that oil has crossed the $100-a-barrel mark not because of a shortage of supply but because of financial speculation.

Views similar to those from OPEC have been expressed by more disinterested sources as well. As far back as April 29, 2006, The New York Times had reported that: "In the latest round of furious buying, hedge funds and other investors have helped propel crude oil prices from around $50 a barrel at the end of 2005 to a record of $75.17 on the New York Mercantile Exchange."

According to that report, oil contracts held mostly by hedge funds had risen to twice the amount held five years ago. Such transactions are clearly speculative in nature.

While the disruption caused by the US occupation of Iraq, other geopolitical factors and the speculation that followed have played a role in the case of oil, what explains the recent increase in other global commodity prices, especially food articles and metals? Chart 3 (based on IMF data) shows that, except for agricultural raw materials whose prices have increased very little, all the other commodity groups have shown sharp rises in price.

The rise in price levels for metals was the earliest in the recent surge, with the weighted average of metals prices increasing sharply from the last quarter of 2005, and almost doubling in the two-year period to February 2008. Coal prices more than doubled last year, thereby showing a faster rise than even the oil price. Food prices, like agricultural raw materials, had shown only a modest increase until early 2007. But since then they have zoomed, such that the IMF data show more than 40 per cent increase in world food prices over 2007.

Food price index

The FAO food price index, which includes national prices as well as those in cross-border trade, suggests that the average index for 2007 was nearly 25 per cent above the average for 2006. Apart from sugar, nearly every other food crop has shown very significant increases in price in world trade over 2007, and the latest evidence suggests that this trend has continued and even accelerated in the first few months of 2008.. The net result is that globally the prices of many basic commodities have been rising faster than they ever did during the last three decades.

It has been argued that these developments are largely demand driven, being the result of several years of rapid global growth and the voracious demand from some fast-growing countries such as China. Certainly there is some element of truth in this. And to the extent that this is true, it implies that the world economy is heading back to the late-1960s and early-1970s scenario wherein rapid and prolonged growth came up against an inflationary barrier. Capitalism's success over the last two decades was its ability to prevent such an outcome, political economy processes that restrained the wage and income demands of workers and primary producers. But clearly there are limits to such a process, and these limits are now being reached.

If this were the only cause of the recent commodity price inflation, it would not necessarily be of such concern to policymakers, because it could then be expected that a slowing down of overall growth would simultaneously reduce inflation. It would also reflect some recovery of the drastically reduced bargaining power of workers and primary producers. But there are other, more worrying tendencies in operation, that suggest that the current global inflationary process has other factors pushing it which will not be so easily controlled.

Forces behind the rise

To understand this, it is necessary to examine the forces behind the price rises for different commodities. In the case of food, there are more than just demand forces at work, although it is certainly true that rising incomes in Asia and other parts of the developing world have led to increased demand for food. Five major aspects affecting supply conditions have been crucial in changing global market conditions for food crops.

First, there is the impact of high oil prices, which affect agricultural costs directly because of the significance of energy as an input in the cultivation process itself (through fertiliser and irrigation costs) as well as in transporting food. Across the world, governments have reduced protection and subsidies on agriculture, which means that high costs of energy directly translate into higher costs of cultivation, and therefore higher prices of output.

Second, there is the impact of both oil prices and government policies in the US, Europe, Brazil and elsewhere that have promoted bio-fuels as an alternative to petroleum. This has led to significant shifts in acreage as well as use of certain grains. For example, in 2006 the US diverted more than 20 per cent of its maize production to the production of ethanol; Brazil used half of its sugarcane production to make bio-fuel, and the European Union used the greater part of its vegetable oil production as well as imported vegetable oils, to make bio-fuel. This has naturally reduced the available land for producing food.

Policy neglect

Third, the impact of policy neglect of agriculture over the past two decades is finally being felt. The prolonged agrarian crisis in many parts of the developing world; the shifts in acreage from food crops to cash crops relying on purchased inputs; the excessive use of groundwater and inadequate attention to preserving or regenerating land and soil quality; the lack of attention to relevant agricultural research and extension; the overuse of chemical inputs that have long-run implications for both safety and productivity; the ecological implications of both pollution and climate change, including desertification and loss of cultivable land: all these are issues that have been highlighted by analysts but largely ignored by policymakers in most countries.

Reversing these processes is possible but will take time and substantial public investment, so until then global supply conditions will remain problematic.

Fourth, there is the impact of changes in market structure, which allow for greater international speculation in commodities. It is often assumed that rising food prices automatically benefit farmers, but this is far from the case, especially as the global food trade has become more concentrated and vertically integrated.

A small number of agribusiness companies worldwide increasingly control all aspects of cultivation and distribution, from supplying inputs to farmers to buying crops and even in some cases to retail food distribution. This means that marketing margins are large and increasing, so that direct producers do not get the benefits of increases expect with a time lag and even then not to the full extent. This concentration also enables greater speculation in food, with more centralised storage.

Financial speculators

Finally, primary commodity markets are also attracting financial speculators. As the global financial system remains fragile with the continuing implosion of the US housing finance market, commodity speculation is increasingly emerging as an important alternative investment market. Such speculation by large banks and financial companies is in both agricultural and non-agricultural commodities, and explains at least partly why the very recent period has seen such sharp hikes in price.

Commodity speculation has also affected the minerals and metals sector. For these commodities, it is evident that recent price increases have been largely the result of increased demand, especially from China and other rapidly growing developing countries, but also from the US and European Union.

A positive fallout of the recent growth in demand and diversification of sources of demand is that it has allowed primary metals producing countries, especially in Africa, to benefit from competition to extract better prices and conditions for their mined products. But there is also the unfortunate reality that higher mineral prices have rarely if ever translated into better incomes and living conditions of the local people, even if they may benefit the aggregate economy of the country concerned.

At any rate, metal prices are high and likely to remain so because of the growing imbalance between world supply and demand. A reduction in global output growth rates would definitely have some dampening effect on prices from their current highs, but the basic imbalance is likely to continue for some time. This is also because there has been a neglect of investment in this sector as well, so that building up new capacity will take time given the long gestation period involved in investments for metal production.

Implications for India

So the medium-term outlook for global commodity prices, while uncertain, is that they are likely to remain high even if the world economy slows down in terms of output growth. What does this mean for India? Until the 1990s, both producers and consumers in India were relatively sheltered from the impact of such global tendencies because of a complex system of trade restrictions, public procurement and distribution and policy emphasis on at least food self-sufficiency.

The liberalising policies that began in the early 1990s have rendered all of that history, since one explicit aim of the reform strategy was to bring Indian prices closer in line to world prices. Countries like India seeking to manage this effect of global speculation on the prices of a universal intermediate like oil have to decide how important it is to insulate the domestic economy and the domestic consumer from its effect.

Given the huge revenues being derived from duties on oil products, one way this can be done is to forego duty while holding oil prices. This would require compensating for revenue losses with taxes in other areas which a growing economy can contemplate. But the Government appears unwilling to take this route, increasing pressure to hike oil prices further and aggravate an inflationary tendency that is already proving to be economically and politically damaging.

Ineffective strategy

This reticence till recently to proactively insulate the domestic economy has meant, that both producers and consumers are now more or less directly affected adversely by global trends.

The Government's response to the domestic price rise, which is already creating panic in official corridors in an election year, has been to reduce or eliminate import duties on several food items such as edible oils, so as to allow imports to bring the price down.

But that is a short-sighted and probably ineffective strategy. It provides direct competition to Indian farmers producing oilseeds, even as they suffer rapidly rising costs. It sends confused signals not only to farmers for the next sowing season, but also to consumers, and leaves the field open for domestic speculators as well because the imports are not under public supervision but left to private traders.

Most of all, given the tendency of international commodity prices noted here, it will not solve the basic problem of rising inflation in such commodities. Instead, it will make the Indian economy even more prone to the volatility and inflationary pressure of world markets. In fact, the increases in prices in India have not been as sharp for some commodities largely because of the vestiges of the intervention era.

Thus, prices of some commodities, like rice for example, have gone up less than world prices only because exports have been prohibited. This does suggest that the Indian economy cannot hope to remain insulated from these global trends without much more proactive policies that rely substantially on government intervention in several areas.

In the case of food, this essentially requires a more determined effort to increase the viability of food cultivation, to improve the productivity of agriculture through public measures, and to expand and strengthen the public system of procurement and distribution.

For other commodities too, it is now evident that a laissez faire system is simply not good enough, and public intervention and regulation of markets is essential.