Real cure for Inflation headache: Fix rural infrastructure, process more food

Inflation — retail as well as wholesale — has increased in March over relatively benign levels in February. At 5.7%, the growth of inflation based on the wholesale price index ( WPI) was at a three-month high, compared to a ninemonth low of 4.7% seen in February. The Reserve Bank of India (RBI) now sets policy rates by looking at inflation based on the consumer price index (CPI). And even here, things do not look good. After having fallen to 8% in February, CPI inflation has crept up to 8.3% in March. Yet, we believe that the RBI can afford to hold its policy rates, if not cut rates marginally, as a signal to boost growth, during its next policy review in June. Isn't that a contradiction? After all, faced with inflation, central banks tighten rates. But the current inflation spiral in India stems from things that are outside the pale of monetary policy: deep structural defects that boost the prices of food, especially vegetables, meat, eggs and milk.