Structural factors & supply bottlenecks behind inflation
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India has largely been a supply constrained economy and supply shocks have more than often been responsible for triggering episodes of high inflation. Even the recent food inflation has been triggered by supply disruption in vegetables particularly of onion due to unseasonal rain in some parts Maharashtra. However, there is a general perception that the current round of high food inflation began with the monsoon failure of 2009. This is incorrect. The current round of food inflation began much earlier, around middle of 2008 and since then it has remained at an elevated level. Yet it is still understood and analyzed as if it is essentially a seasonal phenomenon and as supply improves with the arrival of new crop it will automatically get corrected.
In fact, the current round of inflation is driven by both structural and seasonal factors. On the structural front there are....
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Sunil K Sinha is the Head of CRISIL Ltd, a Standard & Poor's Company.
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