Clipped from: https://economictimes.indiatimes.com/blogs/et-editorials/a-global-ill-wind-of-inflation/ET Edit
Quick takes, analyses and macro-level views on all contemporary economic, financial and political events.
The rising trend in commodity prices calls for greater efficiency in inflation management, and makes achieved real growth more important than ever, so that the additional liquidity created to support growth does not end up merely raising the prices of a static supply of goods and services.
Ironically, the spurt in global commodity prices comes just when inflation finally seems to be coming down in India, consumer price increase now being 4.59%. Global recourse to infrastructure building as a tool of bolstering growth pushes up demand for commodities. The need is for imaginative and proactive fiscal policy to boost growth, vigilant monetary policy management and concerted efforts to achieve optimal efficiency in resource use.
Energy commodities have spiked 15% in December alone. And there is double-digit price rise on the metals and minerals front. Further, the pandemic has also elevated precious metals. Note that in April last year, while prices of oil, the most traded commodity, collapsed, albeit temporarily, gold prices went past $2,000 per ounce for the first time ever, as a store of value.
Meanwhile, international commodity assets under management have reportedly gone up to a record $640 billion last month. A new commodity super-cycle seems well underway. The way forward is to purposefully stepup recycling and reusing, for instance, steel, metals and building materials generally. India has a 25 MT domestic scrap industry.
But as the steel scrap policy paper of 2019 makes clear, it is quite unorganised and in pressing need for policy support for much-needed modernisation. Aligning the import duty on scrap and virgin metal is the efficient way to boost recycling. Lowering excessive import duties is an option at our disposal to fight inflation. Besides, Section 35 AD of the Income-Tax Act, which provides deduction of expenditure of a capital nature, surely needs to be extended to scrap. In parallel, we require active futures and options products in the commodity derivatives market for better price discovery.
This piece appeared as an editorial opinion in the print edition of The Economic Times.
aniltikotekar4sme.com 