Friday, November 11, 2011

‘The persistence of inflation is worrying’

Dr. C. Rangarajan delivers the 12th Commemorative Lecture organized by the Fedbank Hormis Memorial Foundation

By Shevlin Sebastian

“The one disturbing element in recent years is the persistence of inflation,” says Dr. C. Rangarjan, the chairman of the Economic Advisory Council to the Prime Minister. “The other problem is the recent decline in industrial production.”

In July and August industrial production has been below 5 percent. “Even if the rate of growth picks up in the second half of the year, the overall rate may be well below the projected 7 per cent,” said Rangarajan. “The world economic situation is also not very encouraging.”

Dr. C. Rangarajan was the featured speaker for the 12th Commemorative Lecture organized by the Fedbank Hormis Memorial Foundation. The subject: ‘The Indian Economy – Prospects and Constraints’.

In 2010-11, inflation was triggered by the rise in the prices of vegetables, fruits, eggs, fish and meat. “The increase in vegetable prices has been significant,” he said. “The late rains had a severe impact on the supply of some vegetables, including onions.” The persistence of food inflation has led to the spread of inflation in other sectors.

Rangarajan said that there is an urgent need to expand employment opportunities and improve productivity across all sectors of the economy. “It is important to narrow the economic disparities across and within states,” he said.

Rangarajan’s voice sounded pained when he said that India was still in the bottom league of nations when it came to the UNDP’s Human Development Index.

The Indian economy is also being hampered by the low yields in major cereal crops, as compared to countries like China. “We have large science and technology establishments for agricultural research, but the results in terms of productivity leave much to be desired,” he said. It was a polite way of saying that they were white elephants.

Another major problem is the shortage of infrastructure especially in electricity. “A shortage of electric power leads not only to production losses, but also impacts profitability and competitiveness,” he said.

To give an idea of our lack of competitiveness, Rangarajan said that China adds to its capacity in power in one year what India takes five years. “That is how big the gulf is between us and China,” he said.

Nevertheless, his overall message is positive: If India grows at 9 per cent per annum, the per capita GDP will increase from $1600 to $10,000 by 2025. “Then we will become part of the middle group of countries,” he said. “It is necessary to have a strong growth to provide employment to the growing numbers of young people who will join the labour force.”

Earlier, in a welcome speech, Shyam Srinivasan, the MD and CEO of Federal Bank, praised the visionary qualities of the founder, K.P. Hormis. “Today, the bank does over Rs 80,000 crore in business, has 825 branches, 867 ATM’s and an employee strength of 8500.”

The hall at the Gateway Hotel was expectedly packed, and consisted of, what P.C. Cyriac, the Chairman of Federal Bank described, “as the cream of the intelligentsia in Kochi.”

And on the dais, there was one trustee of the foundation who would have the fondest memories of the founder: K.P. Hormis’ son Raju Hormis.

(The New Indian Express, Kerala)