Milk prices and inflation

Milk prices have increased in Karnataka by Rs 2 per litre for the consumer and price receivable by the villager/producer. It reaches higher incomes to producer women contributing to enhance their sphere of activity, and freedom and dignity in their families and neighbouring society.

Milk is a common consumption item, its price increase impacts on general price level or inflation, ruling at 7.35% in Dec 2019; prices of coffee and tea at street-side hotels, including eateries functioning from carts in busy corners. Sweetmeat stall products also become costlier, as a result.

It is hoped that a greater share of milk will be consumed by villagers, women and children to enhance their nutrition---international agencies suggest a per capita consumption need of 250 mL; and per capita availability in India has steadily increased and is now more than 350 mL.

This price encouragement will possibly lead to increased numbers and improved cattle heads in villages and associated employment of local youth in rural non-farm sector including in processed food industry, distribution and transport. Extant higher levels of education will possibly provoke improved animal husbandry practices.

Milk production in rural areas and its forward and backward linkages will surely enhance employment at the lowest levels of poverty and extant rural skills.

Steadiness here has to be ensured and thus poverty becomes further abated including promoting longer stay of youth in schools, colleges and ITIs and polytechnics.

This production increase will contribute to increasing availability of superior foods; supply side activity to control inflation. Augmenting milk production is a part of expansion of rural economy including drinking water availability, sanitation, housing, roads and transport.

Midday meals in schools, ante- and post-natal centres and crèches can be made more nutritious with increase in the use of curds and butter milk; in addition to pulses, fruits and vegetables.

The governments’ and RBI’s policy aim is to control inflation and recently it has spurted, affected by prices of superior foods, energy and fuel.

Non-food or core inflation believed to be free from seasonal contingencies/pressures, has been low leading to the RBI cutting bank interest rates with the fond hope that there is expansion of productive investment.

This is not happening and across the economy, there is declining capacity utilisation. Unfortunately, unemployment is at a 45 year high. Or, incomes are not increasing and spreading, but price rise is worrisome, leading to stagflation conditions.

Dichotomous, simplistic right-wrong, good-bad, yes-no views on inflation are untenable. Increasing milk consumption prevails among rich and middle classes and city dwellers.

Owing to systemic persistence in inequality, income of these classes is ever increasing; and they can pay more for consumption articles like milk.

In fact, policy response to inflation has to be rather to reach incomes to the poor and deprived; and requires dirigiste and escrow encouragement to capital investment, productivity, production and employment at the grass roots level.

It is highly doable and traditional---levelling and greening of land and upgrading of water bodies including rain water conservation.

From a policy or economic administration perspective, inflation control has to be balanced with growth in employment, productivity, production and spread of incomes---economists say more the employment and incomes, more the inflation.

With high levels of bank non-performing assets (NPAs), lending is constrained. Adding to it is low and declining capacity utilisation and larger unsold inventory in the corporate sector.

Interest regimen

The poor are unable and lack the confidence to invest; low interest regimen enables/encourages the rich to borrow and invest in rent and capital gains avenues. And it is not resulting in spread of employment, incomes and services and wage goods production, in the hinterland crevices of the economy.

Thus, extant economy management privileges the owners of financial capital as against the poor and deprived labour. Another element in this perspective is ensuring financial stability.

Banks and such other institutions should be readily able to meet their obligations to depositors and creditors duly: forced restrictions on withdrawals, as has happened in the case of Punjab and Maharashtra Cooperative Bank, PMB and at the time of 2016 demonetisation should not happen.

And the Reserve Bank of India, as the lender of last resort to banks, should be well armed to meet contingencies---and Cash Reserve Ratio, repo operations, interest rate prescriptions are all the instruments for this.

More than anything, constant diligence on the part of financial institutions will pave the way for prevention of default and distress in the fields of employment and production and poverty alleviation.

Reaching incomes to the poor and their due financial inclusion as depositors and borrowers, and their access to income, health and capital security will all follow from financial stability. The RBI is purposed to accomplish this on a continuing basis, since 1935.

(The writer was professor, Maharaja’s College, University of Mysore)