The colour of money

Parliament was stalled for a week as the government and opposition negotiated a discussion on the price rise of essential commodities.

Finally, Lok Sabha had the debate on Tuesday, and Rajya Sabha on Wednesday.

There have been several debates in Parliament on this issue in recent years. Indeed, this issue has been debated in each of the previous three full sessions of the current Lok Sabha. It is interesting to see what issues were brought up in these debates.

Monetarist economists, such as Milton Friedman, believed that “inflation is always and everywhere a monetary phenomenon”. Not all economists agree with this view but almost all of them will say that change in money supply is an important contributor to price changes. However, our MPs do not seem to subscribe to this view. In nine debates since 2004 in the Lok Sabha, 224 speeches were made by MPs. Hardly any speech connected monetary policy with inflationary pressures. Subsidy cuts were mentioned 94 times while the public distribution system was blamed 43 times.

Another favourite scapegoat was hoarders and black-marketeers who were responsible for driving up prices — mentioned 42 times. A few speeches mentioned failure of monsoon and shortfall in crop output.

Note that all these issues are related to supply bottlenecks. There is hardly any mention of demand-led factors. This may be the politically expedient position. Loose monetary policy and a high fiscal deficit are not mentioned, possibly as no one wants to be seen as criticising either a pro-growth stance or rising government expenditure.

The debate this week saw a similar pattern. Fifty-five MPs expressed their views. Just one of them mentioned monetary policy as a possible tool to manage inflation. It is interesting to see that the content of parliamentary debates on inflation have not changed over the years, regardless of the actual inflation situation.