But, this too will lead to cost-push inflation as discussed. How?.through the withdrawal of oil price subsidies. Government borrowings must be stemmed so as to control inflation. A holistic view is required that would show the sources and causes all of which need to be tackled together to produce the results we want to see on a permanent basis. That it would not is evident from the complex web of relationships between various economic variables that together create hardships for all alike. We could live with the IFIs’ advised accounting approach only if it would show the desired results. The trade-off consideration between efficiency and equity appears to be getting more and more permanently shelved. Same outlook is demonstrated in the increase in support prices of wheat and other farm food products, the political considerations notwithstanding. The entire focus is on making the system “efficient” through withdrawal of oil price subsidies in utter disregard of the issue of equity. So, what looks like a solution is a stop-gap arrangement likely to make the fiscal deficit look good only in the interim following which we will find ourselves grappling with the ramifications of this ill-advised symptomatic measure. We will be caught in the dog catching its own tail syndrome as burdened manufacturers’ ability to pay taxes will be further impaired that will, in turn, impact the fiscal deficit adversely. The withdrawal of subsidies will set off another price spiral that will impact exports adversely, swelling up the current account deficit even further. Farm input prices will also rise making farm products dearer than before.

It will, however, have a ratchet effect on the prices of all manufactured goods as not only will the cost of materials and distribution go up, the wage bill will also rise as higher salaries will be demanded. While there is an attempt to solve them sooner rather than later, some of the proposed remedies are more symptomatic instead of a jab at the sources and causes.įor example, an IFI’s suggestion to withdraw subsidy on oil prices to favourably affect fiscal deficit might temporarily serve the purpose somewhat.

Some of the gravest economic issues inherited by the elected government include inflation in general and food inflation in particular, rising oil prices, rising poverty, unemployment, energy deficit, current account deficit, and deprivation related issues of rising crime and terror, to name a few.

Slapdash era