Dear Sir,

Congratulations for your postings, I will post comments on your posting on regular basis.

With Warm Regards,

Debashish Bramha.
Calcutta.

Very interesting read.

Just one more possible explanation:

Indian govenment should stop subsidising gas (petrol).
In the last two years the petrol cost per litre has risen just 4% (Rs. 48 to Rs. 54), while the crude prices have risen by more than 100%. This artificially low fuel cost may be fuelling inflation.

In the last two years the petrol cost per litre has risen just 4% (Rs. 48 to Rs. 54), while the crude prices have risen by more than 100%. This artificially low fuel cost may be fuelling inflation.

Something wrong with those numbers: Rs. 48 to Rs 54 = Rs. 6 increase on original price of Rs. 48 = 12.5%, not 4% as suggested.

Anyway, how would an artificially low price be fuelling inflation? Elsewhere in the world increasingly high fuel prices are blamed for contributing to inflation.

High fuel prices, while regressive because they impact on every aspect of goods distributed through the supply chain, are an inevitability of supply and demand.

Well said, India need good Governance practices and long Governments in both central & in regional to tackle many issues which are serious such as dirty politics, inflation, food shortages, internal security, economic stability.

I don't understand what previous governments from 60 years have been doing to stabilize INDIA.

I personally think this is the time to keep selfish politics aside and work for greater global presence like china.

I think CHINA should be an example to INDIA both economically and politically.

regards
NRI , RedKing

dear sir:

it's an interesting topic,i can relate your insights because i'm from Philippines and we have the same malady facing in our respective country. I believe that food shortage is become a world concern most specially in the developing countries like ours. I agree in your views specially "an urgent crying need to improve agricultural productivity" I have something to share with: Before Vietnam representatives were coming in the Philippines to study about the production growth of rice crops along with its quality, but now it turns out that my country is now importing rice from various asian neighbors including the vietnam. I also admire that China is doing better in their economy and i agree that good governance is more signigicant than the government itself.

Best regards,

Mariafe M. Plaza

Dear Sir,
It is intresting that here in Canada-Ontario as well. Provincial government raised their MP's salary by 25% is year 06. Arguments were given 1) cop up with Federal MPs salary 2)cop up with private companies executives' salary.
My basic question is why person joined politics?
1) for his/her and his/her families future
2) public services
3) enjoying power
and now all see where ontario economically is, one can blam US economy to cover him/herself.
I was little side trake, let me go back on my question,

Whats your thought? I was thinking privatization of government (state/provincial), its not like dictatorship but something more accountable, profit/loss sharing and create win-win situation for both.

Thanks,
Suketu

The currency change is a one time factor which will create more problems since not all of India is educated and many could be fooled by defaulted currency.Moreover it is not creating a framework wherein we will prevent the hoarding of commodities and currency(black money).Instead we need to do few things,First we must inculcate people do be tax paying,So the taxes must be reduced to such a extent that pinch is not felt.Instead of taking bulky 30%+ lets reduce it to 20% and augment the tax loss by increasing sales tax and reducing the intrest rates.Because of large intrest rates people are storing the money in bank,instead if the intrest rates are lowered to such an extent that banks dont pay much intrest rates then people will start spending the amount in investing in assets like real estate,stocks & bonds etc.People will then invest in venture capital firms increasing the prospects of businesses in India.For Agriculture the need is for transparency,the markets are a big mediums through which such a transparent system can exist and have sustainance.We need to create a back bone for such market.We already have PDS and post office networked across India we must use that network.PDS can now function as storage back bone of agriculture products and post office can operate as transport back bone.With this change in infrastucture commitments we can create a vibrant agrculture market where traders can buy and sell the quantities,Traders could be farmers for a change.They could sell a produce to a buyer in remote part of India with this storage + transport backbones sustained by the transaction costs and sustaining a vibrant economy.This will remove all the hoarding at once.since if goods are available with little effort nobody will hoard.

Hello Prof,

Have a few clarifications

1) I dont understand the rationale behind re-evaluating the rupee can you explain this in detail ?

Regards

Albert

My 2 Cents..

Regarding the rising prices of Food Stock, I think one of the possible reasons for this is the Govt. rapid deployment of infrastructure and the Tech/Business Parks, which use/consume so much of the agricultural land. That we are shrinking the area under agriculture adding to the scarcity and fueling prices.

Next I feel it would be better if we get the Central Bank as an independent entity like the Election Commission so its policies are less loosely tied with the short term goals of most political parities.

Thanks for bringing the idea of monetization, it seems that it is long pending since.

But it doesn't seem good when the inflation is hovering around 7.61% there is no need to take such drastic steps.

The only reason for rise of inlation is increase in hoarding by people. Goverment should stop supporting such kind of tendencies. There should be strict action against such persons.

Dear Professor,

I do agree to what you say, but one riddle is not getting cleared to me. Do our political high profile leaders really think for the country. I do agree with the heating up scenario of global food system, domestic crops also started flying high to follow the same trend and our ruling parties are not in a position to speak against that! Agro-income remains tax free and so the wealthy farmers of north west reagion of the country can not be brought within the tax bracket. Indian productivity, although not so low, has room for improvement. Our honorable leaders must explore these possibilities of increasing inflow to goverment exchequer and reduce the unnecessary loading of duties on fuels. Process wise Diesel is costlier than Petrol and in our country the scenario is simply reverse because of some unknown reason. Government should be honest and transparent in their performance and should take some necessary and politically unpalatable steps to improve the economic future of the country. The people, when start digesting the benefit of the decisions, polotical stability will automatically continue without furher chance of disturbance.

A very good thought well said. In Karnataka as you pointed out, a party offering illicit election promises, we (common man) would be interested to know where from the money is going to suck into their treasury to offer rice in cheaper price and televisions for free to the people of the state. Are we talking about supply and demand balancing act, or just feed and entertain people of the state and keep them away from the facts.

Shooting up food prices is a major concern in India. It is no longer affordable to India's billions of lower class people to have good food. Shortage can be blamed, but are we considering the developments shouldn't stop the cultivation of eatable crops and converting agricultural lands to roads and multi m(b)illion worth flats and "SEZ". In Kerala, vast rice fields are converted into dry land to make way to rubber plantations since that is profitable. This is still happening and none seems to be bothered about that. Now once self sufficient Kerala is buying rice from other states at a huge price..

Also it is a concern that India Government is not working at developing Cold supply chains. The produced perishables are not reaching the consumers at the right price due to loss in the supply chain. Only 25-35% of the food crops produced are reaching the consumer market only because of underdeveloped supply chain. Either government should step-in to develop the infrastructure required or allow private parties to do so.

All this is well and good. But ultimately we will have to see the speculative bubble for commodities deflate soon, and productivity gains take hold, in the medium term, specially in agriculture, for things to change. The private sector, specially in south asia, should take on the challenge as much as the government to tackle inflation by improving productivity.

In my opinion, price rise has been occuring for the last two years. Unfortunately we as elite class ( govt.agencies, intellectuals,educated & well to do class, economists, policy framers) went into denial mode of not accepting or noticing likely dangers. Frankly speaking most of us may not have grass root experience of shopping daily items. All of sudden we all awake including newspapers and start talking / lecturing on control measures which is too late.
India is suffering from lop-sided policies, encouraged too much LPG without seriously studying all factors, shut their eyes to likely impact of such measures ( Growth will take care of all issues approach)on poors / unorganised sectors.LPG is good provided we have first created condusive socio-economical & polical environment - a strong base (launching pad. Alas that has not happened. We must take lesson from China.Still it is not too late.We may go for mid correction.

Dear sir,

Good report and real bold measures suggested. These ideas sure to have cropped up in the minds of Chidambarm and economisits. But a country with too many parties and coaliation govt,it is really difficult to implement these bold deicisions. What india need is a controlled democracy.Something in line with US..Every minority group having a party though helps them voice their opinions,but slows down every big initiative.

Why is it all of a sudden everyone talking about food shortage?What happend to the brains around the world to forsee the food shortage, when when they are trying to protect the world from some UFO attack in the future.

It is a starnge situation in inida. Majority of the politicians are uneducated who take the call on what should be done for the country, while the intelligent bunch of adminstrative officers implementing what politicians want achieve. When there is a needed authority given for their brains of administrative officers, it would accelarte the performance of every govt organization.Thats what lallu did to Railways.

Dear Sir,
Your well researched paper suggested a remedy for the inflation,i.e.demonetisation.You are requested to divulge the feasibility of this step and how it will help our country in long run keeping view of our large export transactions in textiles,apparels and service industries.
Thanks,
Regds.
Satish Jha

How India Should Combat Inflation
Posted by B V Krishnamurthy on April 11, 2008 3:16 PM
As a knee-jerk reaction, the government has announced that “all fiscal, regulatory and suppl- side measures to rein-in inflation would be taken.” In other words, too much rhetoric, too little substance
The government finds itself in a Catch-22 situation.
What should the government do?
We need less government and more governance, particularly e-governance
There is an urgent and crying need to improve agricultural productivity
Finally, though not related to rising prices, the civil nuclear
cooperation deal between the India and the US is as good as dead.
I have just repeated few sentences to get the cobwebs from my head and see if I think clear.
I agree to all you state. That is fine with you, us, and the people who do not understand the value of the agriculture. The IT has gone in so deep in the veins of the populations that the Indians think that IT is a saviour.
You are familiar with the Silicon Valley where most youths from India went, returned to Bangalore and settled in India. They think the trip was worth making cash. This is what has left the land untapped. The agriculture has fallen behind as we speed for the space and modern youths. There was time when the land was called the mother and rightly so. It was nurtured and placed as God. Rightly so. Then we had and have graft that the land is eroded to give way to the modern moneymakers and takes. The big or I would emphasise HUGE ill is the bribery call these greasing of the palms to get anything done.
The inflation will increase as the money will increase. At what cost, the future will tell. For now, the government’s first task is to curb the graft that is in the blood from the heritance.
I thank you
Firozali A. Mulla MBA PhD
P.O.Box 6044
Dar-Es-Salaam
Tanzania
East Africa

Mr. Krishnamurthy has hit the nail on the head. All that he has said is 100% true, the New Rupee will render black money inoperative for a while. This would give the country time to breathe and bring inflation down quickly. This is the most urgent step required.

Dear Professor,

Some one aptly asked the question....why does some one join politics???? I guess it is not for economic nor socio economic causes...it is more because they are either from a politically strong family with their forefathers active politicians or people who are there to make loads of money.

Its great to speak about reforms and other things but they are good only on paper and in discussions...when it comes to implementation we back out.

Hoping that some day these will get implemented.

Regards,
Pradeep

Dear Mr. Krishnamurthy & others,

Very interesting thoughts.

But, how do we see them in action? I feel a country like India needs fora like "Citizen Government". Such a body should powerfully influence Govt policies and actions, in order to benefit from fruitful ideas from citizens.

regds

Dear all,

Thanks a lot for so many insights.

1. Debashish: Thank You.

2. Peter and Chris: I will probably write a separate column on gas prices. Prices of petroleum products suffer from cross subsidies. As an example, LPG is heavily subsidized. The government does not have the courage to increase LPG price for fear of alieanating a vital vote bank - home makers. There is a crying need to improve public transport and discourage the use of cars by individuals; car pooling has not even been tried yet in any significant way. The latest on this is the government's decision to issue oil bonds for almost $9 Billion to bail out the state-owned oil companies that are suffering huge losses every day due to the artificially low price of petro-products.

3. Redking: Governments wanting stability in the country is a myth. Consider this: 9/11 was an aberration. In the 6+ years since, there has not been a single terrorist attack in the USA. In India, terrorist attacks occur with sickening regularity. Just two days back, there were six simultaneous blasts in the tourist city of Jaipur. Over 100 people were killed. India appears to have become a soft state. Unless we develop a zero tolerance for disruptive activities of any kind, there cannot be much hope.

4. Mariafe: Watch out, Vietnam may be the next power to reckon with in Asia.

5. Suketu: The data provided by politicians in the on-going state elections in Karnataka (South India) is mind-boggling. In many cases, the wealth of the politicians has multiplied more than 1000 times in just 4 years (2004 - 2008). Now you know why people enter politics. I don't have any problems with performance based compensation for everyone. I doubt whether politicians would be interested.

6. Prakash, Albert and Abhishek: Demonetisation is an extreme step. How else will you remove the scourge of black money? Many amnesty schemes have been announced but none has worked. Simplifying the tax structure is equally critical once you have a new currency. My tax rules would be just one page. Define income and levy a moderate tax on it. Start with as low as 5% and go upto 15%. Create conditions that make it unattractive to avoid tax. And widen the tax base. The revaluation was suggested to reduce the costs involved in introducing a new currency. It would also help the country to move gradually toward a gold standard.

7. Ashish, Sebin, Prabodha, Mateen, Stephen: All very good points. Agricultural Income should be taxed. Why not? In a recent survey, it was found that nearly 75% of our elected representatives have declared their occupation to be agriculture. You can easily guess the reason. We need to move away from the compulsions of a 20+ party coalition and towards a two-party system. The first-past-the-post has not worked. We need to insist on a minimum of 50%+ vote.

8. Satish: A separate post on de-monetisation will be needed. Please be assured that no honest person need be afraid of the consequences.

9. Firozalli: Let each one of us take a pledge that we will neither give nor accept bribe. Then see the magic. It requires courage and determination.

10. Jacob, Pradeep and Murali: I share your optimism. Life is based on hope. But we can all make a small beginning in our own ways. To repeat a cliche', a journey of a thousand miles starts with a single step.

Thanks again and good wishes to all of you.

I think the GoI can not control the inflation for a unique reason of not stocking adequate food materials and other consumer goods. We should not repeat this and the Government should focus on bridging such gaps in the managing of indian economy in the future.

Respetced Sir,

A wonderfully written article. I could easily find many interesting points in that. Fantastic. Will get back to you with some more points...

Thanks.

Respectful regards

Dr.BijuMukundan.

How India Should Combat Inflation
Posted by B V Krishnamurthy on April 11, 2008 3:16 PM
Indian inflation has just hit a 3-year high of 7.41%. We can take comfort from the fact that many of our neighbors are faced with 20%; even China has reported an 11-year high of 8.7%.
Oh I had a good laugh when you came to me. You see I cannot and will not help you. I am in the similar countary that has graft like in Indai. No matter how mcu I promise, my sond will not keep me and tell me, "Dad yoy are a fool for breaking the lucrative way of easy money". I am sorry I cannot help here. You ahe your problems. I am like petrol pump attentand. If there petrol I give, ifth etank is empty, I sit under thtree and wistle.
I thank you
Firozali A. Mulla MBA PhD
P.O.Box 6044
Dar-Es-Salaam
Tanzania
East Africa

9. Firozalli: Let each one of us take a pledge that we will neither give nor accept bribe. Then see the magic. It requires courage and determination.

10. Jacob, Pradeep and Murali: I share your optimism. Life is based on hope. But we can all make a small beginning in our own ways. To repeat a cliche', a journey of a thousand miles starts with a single step.

Thanks again and good wishes to all of you.

- Posted by B V Krishnamurthy
May 16, 2008 09:10

Please correct the spellings of my comment that too gets the light shock, (power) shocks and give hicupps.
I thank you
Firozali A. Mulla MBA PhD
P.O.Box 6044
Dar-Es-Salaam
Tanzania
East Africa

I have relocated to India after living in Boston for 20 years. I have been traveling and doing business since 2006 in India. This is what I believe India should do to combat inflation:

1. Energy Self-Sufficiency
India must get down to zero-sum game on energy needs. It must
a) Explore more gas and build infrastructure to deliver gas to every home and business. It has abundant natural gas resources
b) Explore fossil fuel in the belt of Indian Ocean and Bay of Bengal by building infrastructure for drill rigs, talent, deep sea drilling similar to what CNOOC is doing in China.
c) Research and develop ways to use Thorium as a nuclear fuel and use Thorium and associated equipment for fission and generate electricity. Nuclear Power of at least 50 GW should be decentralized in all states so each state is independent and zero sum on electrical energy need. India should not invest heavily on Uranium based plants but should invest in the interim until Thorium becomes safe reality in production.

2. Law & Order
The delayed justice causes excessive corruption in India. This causes a jungle law in the streets and government department. In my financial estimate, this costs India at least 4% of GDP. In addition it causes a black economy (the unaccounted cash transactions)

a) The law and order in India is amongst the worst in the developing and developed world when it comes to getting justice; 99.9% of Government Staff from top to bottom is corrupt if not voilent. The number of judges, lawyers, police force per 1000 citizens is pathatically low. Takes 20 years to get judgement for even city courts. The Justice quality needs to be better.
India badly needs 250,000 more judges, 5,000 new courts, respective lawyers. It badly needs to reduce the time lag of getting justice from 20 years to 6 months, while maintaining quality.

b) Immediate implementation/enforcement of witness protection program and communication to masses

c) CBI must not report to the prime-minister. It must be autonomous like Election Commissioner and if required should only report to the parliament; head can not be fired or transferred for the period appointed by the parliament.

3. Food Self-Sufficiency
a) This requires India to offer assistance/conseling to farmers.
i) Meterological data and analysis - near accurate weather forecast data and mass communication of the information to farmers. This should happen via public - private partnership and not by outsourcing to government owned weather department.
ii) Counseling of what crops to seed for the season and best utilization of land, water and human resources.
iii) Financing the farmers
iv) subsidized electricity for farmers who are economically depressed or had a economically bad previous season.
v) Building an efficient channel for purchasing farm output and distribution channel using internet, mobile phones to offer best prices to the farmers.

4. Complete Abolishment of License Raj!
All Government Licenses, Demands, Approvals must have the following conditions:
a) Internet Based (eGovernance)
b) Automatic Approval if within specified time no decision taken by Government Employee. Similar ways automatic rejection if no response / evidence provided by applicant with in specified time. Specified time to be with in 30 to 60 days of each step of the process.

5. Where-ever possible Government departments must be autonomous, decentralized and should open up any outsourcing to private companies in a public-private partnership model.

6. Invest heavily in building hard infrastructure through private contractors scrutunized heavily by neutral international inspectors.

Bharat Manglani (bharat@bharatoil.com)
Director (Technology & Strategy)
Bharat Oil & Waste Management Ltd.
www.bharatoil.com
Boston: 617 797 8496
India: 98186 78048

I am sorry, I forgot to mention that another most important thing for India and rest of the world to combat inflation is to detach from USD almost to an extent to 100%. The root cause of current inflation is American Economy/Policy of printing dollars since March 2001. This excess dollars showed up in BRIC and developing countries, who were starved for FX. The primary goal of American President has had been to keep unemployment below 5% at all costs (including wars). The excess dollars translate into local currencies and causes a sea of demand from energy, food, housing, clothing etc. forcing normal demand-supply growth imbalance on natural resources.

1. Therefore I have concluded and have personally been implementing to stay out of USD. India must find ways to increase export to other countries (other than US), reduce USD, get out of USD peg.

2. Come up with a virtual currency peg say "Trade Adjusted Dollar or TAD", The TAD would be basket of 6 currencies and gold namely: Euro, USD, Yen, Gold, Aus$, Can$, Yuan.
The TAD can become an international currency to quote prices and trade. TAD impact against any abuse by any country will automatically be adjusted by market prices, thereby TAD impact will be minimal.

Example: I quote my service contract to a firm in US as TAD$ 500 on May 29, 2008. They decide in August 29, 2008. By then USD has tanked 10% against INR. But TAD has currencies with inverse corelation thereby protecting NPP (Net Purchasing Power) of quoted currency.

This combined with what I mentioned earlier will be an external inflation shield.

Bharat Manglani
bharat@bharatoil.com
Director (Strategy & Technology)
Bharat Oil & Waste Management Ltd
www.bharatoil.com

bharat@footpath.com
President
FootPath Corporation
www.footpath.com