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Supply Side Measures To Curb Inflation: FM

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Finance Minister P Chidambaram on Thursday, 28 February said that curbing inflationary pressures in the economy is very important. Stating that demand side pressures drive up prices, Chidambaram said that all possible supply-side measures would be taken to meet the needs of a growing population.
The Economic Survey 2013 has highlighted measures that the government can take to ensure 'growth-friendly' reduction in high inflation. According to the survey, India faces a number of constraints on supply and the growth-friendly way to deal with inflation is to focus on boosting the supply side.
However, because the vulnerable segments of society may be adversely affected before supply side measures kick in, some targeted support is reasonable, the survey says. Measures such as targeted subsidies for below poverty line ( BPL) families will shield vulnerable consumers.
Permitting FDI in multi-brand retail trading will help consumers and farmers improve their selling and purchasing facilities. This government reform will help insulate some sections of the society from price rises.
Given that inflation has been persistent, it suggests a significant mismatch between demand and supply. According to the survey, for some articles such as food, where demand is hard and probably unwise to curb, supply increases have to be the primary solution.
In the short run, curbing demand moderately so as to allow supply to catch up can be an effective tool, while in the long run, measures to increase supply are the only way to have non inflationary growth, says the survey. The survey admits that some of the short-term measures to curb inflation will have an adverse effect on growth.
"The government can curb demand through fiscal consolidation, while the RBI does so through high policy rates and tight liquidity. These measures may have an adverse effect on growth, but that is precisely how they curb inflation," explains the survey.