What govt should do

The wholesale price index (WPI)-based inflation was already on an uptrend. You have only added fuel to fire by hiking prices of petroleum products. I cannot think of measures that can immediately reverse the movement of the inflation rate. In fact, when final figures of WPI come, the rate of inflation is likely to be much higher. Further, the figures for the week ended June 7 do not factor in the cascading effect of the fuel price hike on the economy as a whole.

What can be done quickly? The year has seen a bumper crop production of 230 million tonnes, which is an all-time high. But, this has not moderated the food-grain prices as much as one would expect. The only action the government can take is to push more food grains into the market to bring food prices down. For this, you need a strong public distribution system. There is a strong case for large-scale food-for-work programme similar to the one the National Democratic Alliance government at the Centre did in 2002 when a bad drought hit India.

Unfortunately, there is no food element in the National Rural Employment Guarantee scheme of this government. But then till the Food Corporation of India and other agencies procured 21 million tonnes, the stock position did not permit such adventure by the government.

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There is also a threat we will have our own sub-prime crisis. Floating rates on home loans are likely to go up further.

Finance minister P Chidambaram blamed the fuel price hike, and said he had warned the Cabinet that inflation would touch double-digit rates. He could have agreed for deeper cuts in taxes and not let the inflation rate go up.