ATTEMPT TO TAME FOOD INFLATION IN INDIA BY A HIGHER INTEREST RATE REGIME IS COUNTER PRODUCTIVE: THE NEED FOR REVIEW OF INFLATION MANAGEMENT FRAME WORK OF RBI AND IMMEDIATE REPO RATE CUT

ATTEMPT TO TAME FOOD INFLATION IN INDIA BY A HIGHER INTEREST RATE REGIME IS COUNTER PRODUCTIVE: THE NEED FOR REVIEW OF INFLATION MANAGEMENT FRAME WORK OF RBI AND IMMEDIATE REPO RATE CUT

Dear Readers,

Any attempt to Tame Food Inflation in India by a Higher Interest Rate Regime is certainly Counter Productive. Rather a Higher Interest Rate regime encourages and adds to Food Inflation, by adding cost to every leg of Production and Supply-Chain-Management of the Foods, that has to be understood rightly and not to be blind to push a Higher Interest Regime to control Food Inflation, very illogical in the India's National Context.

There is a definite need for Review of the Inflation Management Frame Work being pushed by RBI and there is Immediate Need to go for a Repo Rate Cut in the 6.5% Repo Rate RBI is holding since February 2023. 

Let me Explain how the Higher Interest Rate Regime is Counter Productive to Food Inflation and How it is Encouraging and Adding to Food Inflation in India in stead of taming it:

1. It is an acceptable fact and non-deniable that the Foods come from Agricultural Production (Dairy Included in that) of the Nation and from nowhere else. 

2(a). The Farmer's cost of production of Food from Agriculture increases manifold, as the cost of agricultural inputs goes up by a Higher Interest Rate of Lending existing in the Nation. The Cost of Seeds, Fertilizers(leaving aside subsidized fertilizers), Pesticides, Agricultural Tools and Machinery Use goes up with a Higher Interest Rate and Cost of Borrowing in the Economy. Obviously, the Farmer should get a price for the food he/she produces. A simple example I would like to place... now a days the farmers are not depending on the Bullocks for tilling the soil, as at Village Level there are Tractors available to be hired per/hour basis. I have seen it in (most) remotest villages of India now. If the Interest Cost is high, the person who has purchased the Tractor for renting it out to the smaller farmers who do not own a tractor, charges a higher cost of tilling soil per/hour basis to the farmer. The Basic Cost starts here from the tilling of the soil with a higher interest rate regime. One has to understand with a logical understanding of facts. 

2(b).   All Transportation, Storage and Handling Cost in doing the Logistics Management of Supply Chain of the Food gets added by a Higher Interest Rate. Because, it has to be presumed with certainty that there is borrowed capital deployed in it. 

3.  The Inventory Carrying Cost and Transaction Cost of the Traders involved in the Supply  Chain management of Food gets elevated with a Higher Interest Rate. 

4.  The Food Prices vary depending on the Supply and Demand, depending on primarily  supply of Food in the Market as we are a Large Country with lot of Population to the tune of 140 Crores and so many stomachs we have to feed with the Food. A minor variation in supply or supply disruption due to seasonal, climatic/atmospheric factors or under man-made or natural calamities is bound to bring in higher food prices it is quite natural, then it become sporadic and transitional or temporary. There is a competitive market force of Demand and Supply that eventually balances the food pricing nationally.  Over and above that adding to Food Prices by Higher Interest Rate Regime to control Food Inflation, what illogical  and counter productive measure to deal with the subject from RBI?  

5.  Other than above what I have said in 1, 2 and 3 and 4, you apply your mind to any leg of Food-Supply Chain and its ecosystem, there is a cost addition with a multiplier effect, when there is a Higher Interest Rate existing in the economy. It is extremely difficult to comprehend, accept and digest, how RBI is trying to control Food Inflation in India by imposing a very High Interest Rate? Just Illogical and Pervert way of looking at Food Inflation and using the Higher Interest Rate as a Counter Productive Measure for controlling Food Inflation. 

I am expecting and placing my firm opinion that Immediately there should be Reduction in Interest Rate in India by cutting the Repo Rate of RBI from the present highest level of 6.5% (Repo Rate) to ease out the harsh situation prevailing in the Economy due to the Higher Interest Rate Regime and at the same time the Inflation Management Frame Work of RBI should be placed for Review. 

Best regards,

Dr. Nimain Charan Biswal,

Mumbai, India 

About the Author: Dr. Nimain Charan Biswal is a B.Sc.(Agri. Science and Technology), M.B.A. and Ph.D.(Management Area ) by qualifications; and he has 38+ years of work experience in both industrial and development sectors in diversified fields of social importance. He has been educated at Orissa University of Agriculture and Technology (OUAT)-Bhubaneswar, Institute of Rural Management Anand (IRMA) and Gujarat University (with Resource Support of IIM-Ahmedabad). He is further educated at IIM-Calcutta, XLRI-Jamshedpur, Apple Computer Industries and Spar Inc., USA. He has worked for reputed National and International Organizations in Senior/Top Management Capacities at Board level as well as Managing Director and CEO. He is a management expert covering extensive areas from management in industrial sectors, management in agriculture and dairy, development management to management of public systems. He is a prominent professional of India and known Internationally as well. He is also a Political Strategist. He lives at Mumbai in India.