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The Little State that Could

Muthukumara Mani's picture

It is not often that you find forest officers sitting face to face with mining officials to discuss environmental sustainability—especially in a state which is rich in both minerals and forest resources. Nor do you often see fishermen walking toe to toe with farmers in sweltering 48° C heat to be heard alongside tribal chiefs and industrialists. And it is not often that a state, dubbed as the disaster capital of India, and which lags behind on every conceivable development indicator, comes out on top by being the first to consult with its people on how to tackle the onslaught of climate change.

Well, this happened last week in India’s coastal state of Orissa, one of the poorest states in the country. While the richer states - Maharashtra and Gujarat - were busy building fancy climate models to predict temperature and rainfall changes fifty years from now, Orissa focused on what it can do today.

Food Prices and the Inflation Tax

Eliana Cardoso's picture

Oscar Wilde, suspecting that the relationship between price and value hides reasons that reason itself ignores, observes in the Lady Windermere’s Fan that a cynic is “a man who knows the price of everything and the value of nothing”. The economist will laugh at Wilde’s one-liner. But after a brief moment, she would protest. Theory tells her that value and price is one and the same thing. And she will insist that what matters for South Asians today is the difference between an increase in the price level and an increase in the inflation rate.

The price level increases when there is a supply shock, such as an increase in food and fuel prices. The initial increase in the price level tends to transmit itself to other prices when the economy operates close to capacity. If the price increase is accommodated by monetary policy, the supply shock transforms itself in a spiral of prices and wages and inflation goes up. Monetary authorities do right by not tightening monetary policy in response to the primary impact of supply shocks, but have to be attentive in case the increase in food prices begins to encourage secondary inflationary effects.