The contradiction could not be more glaring. On a day when the Reserve Bank of India (RBI) raised policy rates by 25 basis points, the Union government raised the minimum support price of wheat for the 2012-13 procurement season by Rs 165.
Constant increases in the minimum support price for farmers are one big factor in fuelling prices of wheat and rice. This will add to food inflation, which is close to double digits. Law minister Salman Khurshid said the raise has been made after thoughtful consideration. “We hope that this will be a good news to all our farmer friends at the time of Diwali.”
Such decisions are irrational when RBI has highlighted food inflation as a key reason for the structural nature of inflation. Instead of giving away festival gifts —and taking them back at a later date as inflation —the government should display some seriousness in tackling this problem.