Economic growth shouldn’t have to suffer for want of a market solution

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Subscribe to enjoy similar stories. There is an old ditty that India’s struggle with inflation brings to mind: For want of a nail the shoe was lost / For want of a shoe the horse was lost / For want of a horse the rider was lost / For want of a rider the message was lost / For want of a message the battle was lost / For want of a battle the kingdom was lost / And all for the want of a horseshoe nail. It illuminates the country’s plight, with its central bank constrained by high inflation from easing interest rates in response to signs of a slowing economy. Inflation is high because vegetable prices are high, onion and tomatoes leading the charge.

For want of control over some vegetable prices, India’s economic growth is repressed. Inflation in October came in at 6.2%, above the upper limit of the central bank’s target range for retail inflation. Food and beverages have a weightage of 54% in this index, so even if most other prices remain calm, overall inflation spikes when food prices turn unruly.

Among food categories, vegetable prices rose 42% last month, faster than September’s 36%. The government cannot control vegetable prices, except by measures like export bans that depress sowing and guarantee shortages and higher prices in the following harvest season. Nor can the central bank tame veggie prices, except by such harsh rate hikes that growth would get choked altogether.

Where the state is powerless, corporate action could be effective. The problem is not that India cannot produce the vegetables Indians consume. The problem is that harvests occur seasonally, while demand for this farm produce is spread out across the year.