Deregulation, and not price control, is the way ahead to bring down prices and boost industry

The index of industrial production (IIP) numbers for May and retail inflation data for June released by the Government on Tuesday give a mixed picture of the economy. While there is a rebound in factory output, underpinned by capacity addition, 7.01 per cent inflation (slightly lower than 7.04 in April) is well beyond the Reserve Bank of India’s tolerance band of 4-6 per cent. The IIP grew by 19.6 per cent in May, against 27.6 per cent in May last year. But these high numbers have to be viewed keeping in mind the massive decline (34.7 per cent) in May 2020 because of the COVID-induced lockdown. In absolute terms, the IIP stood at 135.4 in May 2019, whereas in May 2022 it was 137.7, the base year being 2011-12 with IIP 100; which means that industrial production is just 1.7 per cent above the pre-COVID level. Manufacturing, which has almost 77 per cent weight in the IIP, grew by 20.6 per cent in May as compared to 32.1 per cent in May 2021. Capital goods, indicating rising capital expenditure, zoomed 54 per cent in May, against 74.9 per cent in 2021. In the first two months of this fiscal, capital grew by an impressive 31.1 per cent as compared to 232.5 per cent in the same period 2021-22. By any reckoning, this is good news.

The same, however, can’t be said about the Consumer Price Index (CPI), released by the National Statistical Office (NSO) of the Ministry of Statistics & Programme Implementation. The price data are collected from selected 1,114 urban markets and 1,181 villages. The Consumer Food Price Index (CFPI) declined from 7.97 per cent in May to 7.75 per cent in June, but still food inflation is very high. Reacting to the persistently high CPI, Finance Minister Nirmala Sitharaman promised continued

monitoring of prices. “We will have to be mindful and watchful of the price

movement,” she said. “I will keep monitoring (prices) item by item for anything that goes haywire. This pointed attack on inflation will need to continue.” While her

concern is admirable, she — indeed the entire Government — should not let

monitoring relapse into any manner of price controls, for it is a well-known fact that price controls are a remedy worse than the malady of inflation. India and other

countries have experienced the horrors of price controls in the past, especially in the pre-liberalisation era. They invariably result in shortages, blackmarketing and

corruption. The problem, however, is that our political class, even after more than three decades of economic reforms, is yet to imbibe the ethic of open economy; so, the temptation to adopt statist measures is always there. The powers that be would be well-advised to opt for deregulation instead; this will not just help bring down prices but also boost industry. This will also help improve the ease of doing business which Prime Minister Narendra Modi is so keen on.