CRISIS

MANAGEMENT
Solutions to the problems or
problems in the solution???
St. Xaviers College, Kolkata
Shubhashrita Basu
Soumik Banerjee
The Problems
Present problem of spiraling inflation
Government of India is keen on increasing growth
RBI is under pressure from IMF to
increase the Repo rates
Lending rates
Inflation around
10%
Main component
Food Inflation
There is short term capital inflow.
Repo rate and CRR rates increment has been
ineffective as policy interventions, given the huge
foreign exchange inflow
Restrictions on short term borrowings from abroad
and on the entry of foreign finance institutes in
domestic money markets
RBI should ideally lower interest rates to foster
growth but it is not possible as per the norms of IMF

Ideal remedies
Study and proper review of the present price
index
Incorporating lagged core, there should be
efficient inflation forecasting by RBI
Expected inflation will be curbed, resulting in
rising unemployment
Curbing Expected Inflation
Fiscal Policy
Industrialization needs to be undertaken
Supply side needs to be lubricated to cater to
rising demand
Expansion in productive capacity through
investment in sectors with maximum linkage
Agricultural Reforms
Expansion in productive capacity through
investment in sectors with maximum linkage
Repeated raids need to be conducted on
hoarders
Exports of food crops should be cut down
Instead of procurement at higher prices in case of
shortages, government must release food grains
from its buffer stock-revamping the PDS
Mark-up cost at every level (imposed by the
middle men) needs to be immediately tackled
Building of proper infrastructure and increasing
R&D help in curbing inflation and boosting
agricultural imports (primarily of cash crops)
Managing oil price shocks
Rise in oil prices fuelling inflation
Increase subsidies in oil prices
Allow a downward revision in oil prices in line with
international market
The ad-valorem royalty on oil paid to government
should instead be fixed. However a part of the
royalty needs to be given as subsidy.
Boosting Government Revenue
Government revenue should be increased
Agricultural sector needs to be immediately
brought under the purview of taxes
Increasing the tax base but decreasing the tax
rate
Strict monitoring and provision of punishment
against tax evasion
Increasing non-tax revenues
Political Remedies
Proper redistributive policies to be implemented
NREGS to be implemented properly
Corruption needs to be tackled
Populist measures should be curbed
So, basically, the point we want to emphasize is
that it is very difficult for the Government of
India or the RBI to sit idle at any point in time
because inflation and growth are simultaneously
dynamic.