This is a screen shot from Google search returns when I searched for ‘MEP Onion’ on the morning of the 8th. Good to see that the government had removed Minimum Export price (MEP) on onions. I had written about the sheer hypocrisy and inconsistency of such farmer-unfriendly policies while India swears by farmers in my MINT column on January 30th.
But, look at the reporting. There is no rejoicing for the former. Yet, when the farmers commit suicide, the media sources will blame the government! If all that the English-language media wants to report on the price rise, why would policymakers not have an urban bias in policymaking?
I am in favour of a review of the inflation targeting mandate.
Inflation targeting does not anchor inflation expectations
Even if we have to retain the framework – too soon to let go, may be and credibility issues are involved – then the target should be asymmetric. Upper limit: 6% and lower limit 3%; central level: 4%.
Food prices should be allowed to reflect genuine demand and supply without government smothering it with artificial imports and price restrictions
Give farmers freedom to sell whenever, wherever and to whomever and then tax agricultural income too.
Use revenues to provide succour to urban poor when food price spiral up too much. But, otherwise, allow substitution effect to happen.
If inflation overshoots, so be it. RBI can write letters to the Government.
Bond yields? Yes, inflation actually need not rise if government deficits are reduced to the extent that one has freed up the farmer to manage his own affairs. Then, government support to the farm sector can come down and agricultural income can also be taxed.
Yes, of course, there will be time inconsistency and some pain.
But, without addressing farmer distress – largely caused by urban and consumer bias in policy that has placed inflation at a higher pedestal than farmers’ welfare – India’s social and economic stability will not be there. Low inflation will be a very poor consolation, if at all.