No wonder, speaking on Friday, when WPI based inflation touched 6.46 per cent, the finance minister could pin hopes only on improvement in supply of agro commodities in the next few weeks, allied with monetary management to moderate prices. Just tweak the money supply problem and get some more bales in the market, and hey presto, the problem is fixed.

The bad news is the trend set by the current policies could come back to haunt the nation later. If the Finance Bill can be used today to set prices of a commodity, it can also be used to decide pretty much anything in the economy, using the sovereign taxation rights of the government. Once industry accepts that price controls and state interventions on supply side are par for the course, then few companies will use booming demand conditions as a time to take investment decisions. They will play around with shortages, instead.

There are other complex signs the government has missed. In districts where the UPA’s flagship social scheme, the National Rural Employment Guarantee Programme (NREG), has got going, prices have risen, because wage labourers have begun visiting shops more often. Studies done by Shubhashis Gangopadhyay for the IDF has shown that in Andhra Pradesh for instance, where there has been a big disbursement of funds, the consumer price index for agricultural labourers has shot up above 7 per cent, compared with next door Kerala, where it is at 3 per cent; Kerala is among the poor performers in NREG.

... contd.