Cutting down food inflation is the govt’s duty; not just RBI.

The food minister has a more powerful magic wand, when the matter is about fighting food inflation.

People considered that Raghuram Rajan was just being unpretentious when he refused of having a magic wand. But, negating unhinged hopes is not such a bad thing. In terms of real policy moves, the new RBI governor has raised liquidity for banks and decreased their cost of funds. He has attained this by lowering the percentage of money banks have to keep with the central bank and by reducing the cost of taking overnight loans from the central bank, below the marginal standing facility (MSF), over and above the loan obtainable under the repo window and this is “pro-growth.”

Simultaneously, Rajan has also maintained the stress on the government to bring down inflation. Raising the repo rate is a method of doing the same. Keeping in view that two instant elements of inflation are directly in the hands of government — the fiscal deficit and management of food stocks.

Rajan’s denial, in the wake of inflation worries, to cut down the repo rate, indirectly hints the government to act. The food minister has a more powerful magic wand, when the matter is about fighting food inflation. In fact, he is the main cause of inflation by hoarding stocks that are higher than the levels required. If the food minister can gather some sense, he would sell his surplus stockpiles across the country at a price that the market would take in and change inflation into deflation in case of cereals, the item which has largest weight in food articles.

In addition, the sense would also persuade the Prime Minister and the finance minister to influence the oil minister to decontrol diesel and allow free marketing, so that fiscal regulation is accomplished by cutting profligate subsidy instead of growth-inducing investment.

Rajan said “The effective policy rate today is the MSF rate, not the repo rate.” However, this has not been understood by those who criticize the hike of the repo rate, consequently leading to perplexity on the RBI’s dedication to growth. The country needs action in non-monetary policy sectors, to clear the confusion. And the sooner, the better.

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