Food Security, Price Stability and the Budget

This paper addresses three interrelated medium-term issues arising, directly or indirectly, out of the central budget for 1997-98: price stability, food security and internal debt management. The government had waxed eloquent in 1995-96 about rice and wheat emerging as major export commodities and about the proper use of 'surplus foodgrains'. But even before 1996 was out we were compelled to arrange emergency import of two million tonnes of wheat. This has exposed the vulnerability of the economy in terms of food security and highlighted the importance of supply-side factors in sustaining price stability. While inflation cannot be controlled by a one-point programme of controlling money supply, containing the extent of monetisation of the budget deficit is critical to sustaining price stability. In this context the abolition of Ad Hoc Treasury Bills from April 1, 1997 has been hailed as a systematic change, but in the ultimate analysis what matters is not the mechanics of monetisation of the budget deficit as the political will to observe fiscal prudence.