‘Farm and Labour Policy Changes Needed for More Equitable Growth’ : 08-01-2020

Reserve Bank of India governor Shaktikanta Das called for farm sector reforms and labour policy changes for a more equitable growth as the central bank policy-making juggles price and financial stability, and growth after the new inflation targeting monetary policy framework became effective.

Improved farm practices could lead to higher income for farmers and at the same time keep a cap on the prices that would not eat into people’s standard of living, governor Das told a conference.

“Persistently high inflation adversely impacts the economy’s allocative efficiency and impedes growth,” Das told the audience at Professor Suresh Tendulkar Memorial Lecture . “It also contributes to a worsening of income distribution by depreciating the real income of the poor in the backdrop of very high domestic inflation as compared to G20 countries.’’ The Monetary Policy Committee headed by the governor in its last meet kept interest rate unchanged belying expectations of a quarter point cut citing inflationary pressures due to rising farm prices. In India, inflation as measured by the Consumer Price Index, which the MPC targets, is influenced by food prices.

While policy makers talk about seasonal factors influencing prices, there are structural factors such as the agricultural produce marketing committees which act as cartels that keep prices high. Some states have since changed these, but many still persist in distorting prices.

While policy makers talk about seasonal factors influencing prices, there are structural factors such as the agricultural produce marketing committees which act as cartels that keep prices high. Some states have since changed these, but many still persist in distorting prices.

Even high prices do not benefit farmers as a tiny portion of the price gains reach them while middlemen gain a substantial portion.

“The average share of farmers in retail prices of major primary food items varies between 28-78 per cent,” said Das. “It is lower for perishables and higher for nonperishable items. Higher share of retail prices going to farmers augurs well for the rural economy, which in turn, could help sustain domestic demand.”

The governor said that financial stability could not be compromised for achieving other goals such as growth as stability is of primary importance to ensure better state of affairs.

“High growth with financial stability augurs well for inclusive growth,” he said.

“High growth can bring inclusiveness in the process of wealth creation. I need not elaborate, but higher growth also improves tax-gross domestic product ratio which enhances the resource availability with the government to undertake social and infrastructure expenditure.”

Source : PTI