Finance

The problem is unlikely to just go away as the Prime Minister expects because the foreign exchange reserve the country has accumulated, which facilitates imports to augment supplies, is also not an effective antidote against inflation. There are two difficulties here. First, as the RBI’s recent policy review statement notes, “the global rates of increase in the prices of sugar, cereals and edible oils are now appreciably higher than domestic rates,” so that the opportunity to use imports to contain domestic food prices is limited. Second, even where imports can be resorted to, managing distribution to reach supplies to where they are needed is not easy given the limited spread of the public distribution system. It is the resulting erosion of its ability to ensure low inflation while pushing for reasonable growth that the government’s anti-inflation propaganda seeks to conceal.

increased emphasis on inclusiveness in economy, society and polity

Financial investors poured more than $50 billion into commodity funds in 2009 — more than three times the average annual pace in the 2003-07 boom years — spurred on by excess liquidity in the system and due to a loss of confidence in paper money, preferring ‘hard assets’ instead.

Foreign exchange carry trades — where speculators borrow in a low interest rate currency and then lend or invest in another currency for profit — are increasingly being seen to pose a major risk to international financial stability.