On new govt table, a report on tackling inflation by Narendra Modi

Anil Sasi Posted online: Monday, May 19, 2014 at 0000 hrs
New Delhi : On tackling runaway inflation, an area where the UPA administration’s consistent failure in its second term is a reason being cited for its electoral rout, the NDA government has a ready reckoner in the form of a detailed action plan — with 20 specific recommendations and 64 actionable points — even before it assumes office. More pertinent is the fact that this detailed report was prepared by a panel headed by Prime Minister designate Narendra Modi in his capacity as Gujarat Chief Minister and was submitted to outgoing PM Manmohan Singh in March 2011.

The recommendations — including reforms of the APMC Act, liberalisation of agri-markets, along with an unbundling of FCI operations of procurement, storage and distribution — will form the blueprint for the NDA government’s supply-side attack on inflation, according to a representative of the BJP economic cell.

In the run-up to the elections, the BJP top brass maintained that the problem of spiraling inflation is specifically on account of supply-side bottlenecks and that raising interest rates, while being ineffective in tackling core inflation (non-food, non-fuel inflation), only served to dampen a demand-led recovery. The BJP’s hard stand against FDI in multi-brand retail notwithstanding, the recommendations include fostering competition by way of promoting retailing through the “organised sector and cooperatives”.

Despite being slightly dated, what makes the report relevant is that none of the key recommendations were taken up by the UPA government for implementation, something that the BJP top brass complained about subsequently. And more importantly, despite a tight interest rate policy maintained by the RBI, inflation has again started to rear its head, with the latest year-on-year inflation estimates for March showing a spike in retail inflation on higher food costs.

Analysts say the risk of a less-than-normal monsoon this summer will call into question assumptions that the worst is over on the inflation front. The focus of the new government, according to BJP economic cell leaders, will be on addressing supply side issues rather than trying to curtail inflation via monetary policy instruments and hiking interest rates.

The Working Group on Consumer Affairs headed by Modi was constituted on April 8, 2010 and the report was finalised in January 2011. The other members of the panel included the chief ministers of Maharashtra, Andhra Pradesh and Tamil Nadu. Unlike the usual practice of voluminous reports, the Modi committee report was touted as a “precise document” that gave specific recommendations with 64 detailed actionable points that would facilitate “expeditious implementation”.

The other key recommendations include a ban on future trading of essential commodities, the setting up of a central price stabilisation fund, a ministerial-level coordination mechanism at the national and regional levels for coordinated policy-making. The measures also include specific interventions such as a time-bound development of agri-marketing infrastructure, including storage capacities in food deficit regions, cold chain, agro-processing, and increasing competition by promoting retailing by organised sector and cooperatives.

The report also suggested the setting up of a price stabilisation fund by the Centre to help state governments procure and distribute essential commodities in short supply. For evolving a single national agriculture market, the report recommended setting up a “ministerial-level coordination mechanism at the national and the regional level for coordinated policy making”. Enlarging the scope of priority sector lending so that the agriculture marketing activities are also made eligible was another key recommendation.

To minimise information asymmetry in the agriculture market, the report also called for establishing a mechanism, if necessary by creating a dedicated agency, to collect and widely disseminate information to all stakeholders on production, import, stocks and overall availability of essential commodities besides extensive use of the information.

The panel also recommended that offences under Section 10-A under the Essential Commodities Act should be made non-bailable and that special courts be set up for speedy trial of offences under the legislation. In addition, the report also stipulated that the period of preventive detention under the Prevention of Black-Marketing and Maintenance of Supplies of Essential Commodities Act, 1980, should be increased from six months to one year.