How to beat inflation?

Curbing aggregate demand in the economy is the way to control inflation, no doubt. Getting macroeconomic policy right does not mean neglecting myriad policy changes that can bring down costs and help hold the price line. At a general level, speeding up decision-making at the political and administrative levels will translate into huge savings on time, project costs and ultimately the price of goods and services.

Instead of languishing somewhere near the bottom of ease-of-doing business rankings, if India were to facilitate business to function with the speed at which more organised nations do the same job, Indian produce would cost less. The cost of real estate in Indian cities is way too high and this translates into high rentals or capital investments, pushing up overhead costs. Increasing the supply of urban land through extensive, planned, fresh urbanisation and first-rate connectivity by road and air is the only way to tackle sky-high office rentals, employee compensation for housing, etc.

This should be understood as a vital part of the Indian economy’s competitiveness and an equally vital contribution to controlling prices. A proactive policy on competition is another way to bring prices down. In some sectors of the economy, Indian producers compete with the world’s best, say, in detergents, while in others, they enjoy the freedom to act like a cartel, for example, in civil aviation or marketing of agricultural produce.

Competition can pare costs by removing layers of price manipulation. Longer-term, inclusive measures to provide quality education to the mass of Indians, rather than only the offspring of an English-speaking elite, would greatly expand the supply of skilled manpower, whose cost is the biggest expense for many service industries, and make way for lower prices of the final goods and services produced by this workforce.

A goods and services tax and free movement of goods across state borders would remove cascading taxes and wasted time, fuel and manpower, again paving the way for cheaper goods and services. And an eminently doable green revolution in eastern India would directly impact the most sensitive segment of the price index.