Fighting inflation: A long-term view

The Reserve Bank’s decision raising the cash reserve ratio of the commercial banks by 0.5 per cent has to be welcomed as an essential measure in the ongoing fight against inflation. But, in itself, it is not adequate. The RBI also needs to make use of the statutory liquidity ratio, the other instrument available with it, with immediate effect. But the fight against inflation is a comprehensive process and every single element in the package is important. One has to recall the package of anti-inflationary measures applied by the government of India in 1974 with dramatic effect.
Interestingly, while most other areas of economics have undergone major changes in recent decades with sophisticated techniques and mathematically-oriented solutions, the area of inflation control has not changed beyond the days of the early economics classics. The basic principle that inflation occurs when too much of money chases fewer goods still remains the basis. This naturally means that money supply has to be strictly regulated and, second, the supply of goods has to be increased. The measures adopted by the RBI are surely the right steps in the direction of controlling the money supply. It will, no doubt, affect the liquidity of the banks, and through this the growth of some industries and the purchasing power of people at large. But these have to be accepted in the interest of the higher goal of bringing down inflation.
Some more steps also need to be taken. Interest rates must be given a second look. Then, the implementation of the government’s decision on the recommendations of the Sixth Pay Commission will imply the release of massive funds in the hands of the people. A part of it may be impounded through savings schemes and annuities. Once again, this will be unpopular with government employees, but should be accepted in the interest of reducing the cost of essential goods. Some restriction on dividend income may also be seriously considered, not on the lines of the ill-thought 1974 move of limiting dividend declarations, but by some other means by which part of the dividend income does not add to the purchasing power of the dividend receiver immediately.
But the real problem arises when we come to the supply side. There has been a global dimension of the increase of petroleum crude prices and many other essential commodities. Also, we have to give serious thought to bringing the rate of agricultural growth to the level it had reached several years ago and to give special importance to the growth of food crops. It is a matter of regret that a substantial number of farmers have, in recent years, given up foodgrains production and opted for growing cash crops which yield more money. There is no harm in paying farmers more for producing food crops. In fact, with our climate, where it is possible to produce some crops all the year round, India — unlike any Western country — has the potential to become a food grower for the entire world. But this option can only be explored after we have a second green revolution.
Attention should, therefore, be given to persuading farmers to grow good crops, to provide them with better seeds, better pesticides, and, above all, loans at easy rates of interest. Also, we need to give up our near-theological aversion to large-scale farming. Small farmers may be encouraged to join up for use of hired mechanical facilities such as tractors or harvesters. This will mean a considerable effort on the part of the administration, as well as those in politics and agricultural scientists. It is time for us to ask serious questions such as why India has been driven to the position of having to import pulses, an essential food crop and essential food for poorer sections, from overseas.
We have to evolve a strategy for reducing our dependence on petroleum. If global prices for crude petroleum have increased from less than $50 a barrel to nearly $120 per barrel in three years’ time and India has not been able to discover any domestic source of crude oil after the discovery of Bombay High during the early 1970s, common sense would indicate that we should have a strategy for reducing the use of imported petroleum. This would mean some very hard decisions like promoting inland waterways, the cheapest form of transport.
It was with this idea that we had promoted a new company — the Inland Water Navigation Corporation — years ago, but have now liquidated it because it was never tried seriously. We should return to that concept and try to promote inland water transportation in bulk in selected areas like, say, Kolkata to Allahabad, the waterways through Bangladesh to Assam and the northeastern states, the waterways that prevailed through the Buckingham Canal from Chennai to the South and perhaps improve the navigability of the Narmada and Tapti rivers. Also, we need to have more of hydel power and nuclear power, taking the emphasis away from petroleum-oriented thermal power.
This would also mean that we should not dismantle our traditional transportation systems in rural areas: cycle-rickshaw vans and bullock carts. They play a very important role in transportation in rural areas. These could be modernised. It will be foolish to replace them by motorised transportation which again means the use of imported oil.
While on the subject we should seriously think of demand management in sectors such as automobiles. India has today become one of the largest markets for automobiles in the world. This explains why nearly every automobile giant has constructed its own plant here. While the automobile industry is no doubt one of the biggest components of industrial growth, we should not shrink from some kind of demand management if only because we must in the long run aim at reducing the use of imported petroleum. These long-term measures will be of great importance in the ongoing fight against inflation. There are other short-term measures, such as banning futures trading in commodities and restricting the use of automobiles, as Singapore has done. Demand management and supply-side economics are both crucial in the war against inflation.
Dr Nitish Sengupta, an academic and an author, is a former Member of Parliament and a former secretary to the Government of India

BBM,BBA Sale of applications

CMS opened its Admission process for 2008-09 year, BBM,BBA Programmes applications are for sale

Infy delivers despite US slowdown, Rupee rise

Software major Infosys has managed to deliver a strong result despite a slowing US economy and a strengthening rupee. The company recorded a net profit of Rs 4,659 crore for the year ended March ’08, up 20.8 per cent over the year before. The company has recorded consolidated sales of Rs 16,692 crore, up 20.1 per cent over FY07.

More worrying however, is the fact that the company has given a lower earnings forecast for the coming year. The number of people it proposes to hire has also come down. For the coming year, Infosys has projected a top-line growth of 19.2 per cent to 21.1 per cent while profits are projected to increase by 16.3 per cent to 18.3 per cent. The company expects to touch revenues of $5 billion in FY09.

"Infosys managed to meet the earnings forecast for last year despite taking a hit of Rs 1,000 crore due to unfavourable exchange rates," said Mr Apurv Shah, research head, Prabhudas Lilladhar. "The outlook is a mix of cautious optimism. For the next one or two quarters, project flow will be slower as there is greater scrutiny on expenses during a slow phase," he added.

Going forward, the company expects things to get back to normal in a few months time. "The company is confident about the operating environment. They feel that new projects could get delayed over the next 4 to 5 months, but there will be no project cancellations," said Mr Gaurang Shah, IT analyst with Asit C Mehta Securities.

Apart from a turnaround in the US economy, exchange rates are also expected to be stable in the current fiscal due to weaker capital markets. Infosys has declared a final dividend of Rs 7.25 per share and a special dividend of Rs 20 per share. Together with the interim dividend paid out, this takes the total payout by the company to Rs 33.25 per share.

Did you know?

* The owl is the only bird to drop its upper eyelid to wink. All other birds raise their lower eyelids.
* The reason honey is so easy to digest is that it’s already been digested by a bee.
* Roosters cannot crow if they cannot extend their necks.
* The colour blue has a calming effect. It causes the brain to release calming hormones.
* Every time you sneeze some of your brain cells die.
* Your left lung is smaller than your right lung to make room for your heart.
* The verb “cleave” is the only English word with two synonyms, which are antonyms of each other: adhere and separate.

Barack Obama, in his own words

Barack Obama is now the Democratic Party's frontrunner for America's next President. In a race that he was not even expected to be a serious contender, Obama, the junior Senator from Illinois, has impressed America by his stirring message of hope and change.
Shortly before undertaking his campaign for the crucial March 4 Democratic primaries in Ohio and Texas, Obama wrote this exclusive article for India Abroad, the oldest and largest circulated Indian-American newsweekly, which is owned by rediff.com.
Sources within the Obama campaign said the Senator had been working on the article for weeks, in concert with close friends and supporters within the Indian-American community, to ensure that he produced a comprehensive articulation of his policies on the various key issues confronting the United States today.
Obama finally signed off on the article last week, immediately after extending his winning streak over New York Senator Hillary Clinton to ten straight wins with sweeping majorities in Wisconsin and Hawaii.

Stop smoking or an early death awaits you

Health Minister Ambumani Ramadoss may ask Shah Rukh Khan [Images] not to smoke in public and many offices may have banished smokers from puffing indoors but India confronts a smoking epidemic.
During the decade beginning 2010, a new study says smoking will cause about 930,000 adult deaths in India annually; of the dead, about 70 per cent will be between the ages of 30 and 69 years.
"People should know smoking is a huge killer and the cause of 10 per cent of all deaths in India. A male cigarette smoker will lose 10 years of his life compared to a non-smoker. A female beedi smoker will lose 8 years of life while a male beedi smoker will die about 6 years earlier," says Dr Prabhat Jha, Director, Centre for Global Health Research, University of Toronto, and the principal investigator of the study on smoking and death in India.
What is alarming is that smoking is responsible for about 1 in 20 deaths in women and 1 in 5 deaths in men between the ages of 30 and 69 in India. About 5 per cent women and 37 per cent men in India between the ages of 30 and 69 years are smokers. In this age group, smoking was associated with an increased risk of death from any medical cause.
120 million smokers -- almost 10 per cent of the world's smokers -- live in India.
While smoking has been on the rise in India, in most Western countries it has declined as a result of high taxes, strong warning labels, effective ban on advertisement and smoke-free work places and public places.
"The Indian public does not know, especially the poor and illiterate, and neither manufacturers nor the government is telling them anything about the consequences of tobacco use," says Dr Prakash C Gupta, Director, Healis-Sekhsaria Institute for Public Health, Mumbai, and one of the co-authors of the report.
"The price of tobacco products in real terms (adjusted for inflation) has gone down. Even though direct advertisements of tobacco products are banned, surrogate advertisement and promotional activities have increased tremendously," he says.
Though awareness is higher among the educated and smoking in this group is comparatively lower, studies reveal the educated are also not convinced anything will happen to them.
"The risk is much higher in middle aged smokers. Even anything as small between 1 to 7 cigarettes a day increases the risk. Among those who smoked only 1 to 7 cigarettes a day, smoking-associated excess deaths accounted for almost half of the deaths from any medical cause," Dr Jha told rediff.com on the telephone, while on a visit to India.
Dr Jha, a Rhodes Scholar, served at the World Bank and the World Health Organisation before joining the Centre for Global Health Research, Toronto. His family migrated to Canada [Images] from Ranchi in 1971.
India passed a law to print pictorial warnings on cigarette packs in 2003 as recommended by the World Health Organisation -- particularly to spread awareness in rural India -- but legal wrangles have delayed the measure so far. The law, which was to be implemented in 2006, has not come into force yet.
"Unfortunately, this measure is getting postponed and weakened for nearly two years without implementation. First, the skull and bones sign was made so-called 'optional' and now pictures are being revised because one of our ministers thinks they were 'repulsive'," Dr Gupta said in an e-mailed interview.
In countries like South Africa, picture warnings have worked and anti-tobacco activists feel it would have a similar impact in India.
The new study is the first nationally conducted survey and made world headlines when it was published on February 13 in the New England Journal of Medicine. For the research 900 field workers traveled to 1.1 million homes in all parts of India. The smoking habits of 74,000 smokers who died between 2001 and 2003 was compared to 78,000 existing smokers. The study was carried out by a team of 12 doctors from India, Canada and Great Britain.
The reason why there is such a high rate of deaths in India in spite of the fact that Indians start smoking later than American and Europeans is because Indians have a high rate of TB in rural areas and heart attacks in urban areas that accounts for deaths due to smoking.
"Stopping smoking can be highly effective but only 2% adults quit smoking in India," says Dr Jha. "The best way forward is for people to understand the risk. People should support tobacco control