Dr. Raghuram Rajan
The question for those who are not intimately familiar with the Indian situation. I presume there are very few of you but nevertheless, is this unemployment insurance program in rural areas basically offers 100 days of work to each family and there is some concern amongst some economists that that has led to a floor in rural wages and pushed up rural wages substantially over the last few years and that has been part of the hike in food prices and therefore overall CPI inflation. Of course, thg ere is a very healthy debate about how much MNREGA is responsible for the rise in rural wages. I would say it is part of the explanation but far from the entire explanation. The sound econometric studies that I have seen that look at this say anywhere from 10% to 20% of the increase. And of course, it is hard to say over what period and what portion of the overall increase of last 4 or 5 years is due to this. One of the concerns more recently has been that these wages are indexed to inflation. So they tend to move up with inflation and create effective indexation of rural wages. That said, I think there are other factors which are also responsible for rural wage increases, including the price in Minimum Support Prices (MSP) which has increased the prices of food and therefore increased the subsistence wage, but also I would say the increasing construction and the rural prosperity generated by land sales has also been partly responsible, construction because that is a place where unskilled labor can be used. So all these factors play a part. Hard to point to just one factor and therefore I do not think it would be fair to say that is the central factor.

This is a much asked question and I think first it is not just food prices which are going up, it is the price of services for example, which have been going up steadily over the last few years including services like education, healthcare and housing. So let us not just say its food prices and nothing else is moving, there are lots of other things that are moving. So at the very least if you cannot stop food prices increasing you can try and attenuate the second round effects the spill over into more general inflation which certainly is in the realm of monetary policy; that is no.1. No. 2 is that clearly you have to push on the government to both increase the supply side but also reduce the incentive or the pressures on food prices. For example, over the last year the government has become more moderate in its acceptance of agriculture support price increases, they have been quite moderate over the last year, going forward. Hopefully that moderation will continue, and that will take off some of the upward pressure on food prices. Also, if you look at some of the food commodities that have increased most in prices recently, you also see the supply response starting to kick in. So the idea that prices will go up without a supply response emerging. Remember, there is a lot of private activity in agriculture and that is responding to higher prices. So I think prices are doing what they are supposed to do, and to give up the fight on inflation saying food is beyond our control I think is understating the powers of the central bank