This is a non-political issue. I plead with the hon'ble members not to politicise the issue because it is too important, it is too immediate, and whatever action you take, is not going to please all. So, you have to take action, but it has to be something on which there is a political consensus.

The second point is that we should not be panicky. If we are panicky, if we seem to be panicky, and if we seem not to be able to tackle the problem, then you would lose. Why? Because more important than inflation is inflationary expectations.

• Inflation, the silent killer

If you take action, and if it is believed that this action is because you have lost ground, because you have become panicky, then inflationary expectations would certainly be fuelled, and you will not be able to cope with the problem. You had the rate of inflation of 4 per cent. Today, you have 7.5 per cent. It has nearly doubled. Why?

There was a global oil problem. That was three months ago. There was a food problem. Yes, maybe, we miscalculated the food problem, and we should have imported earlier. But all these problems are there. So, what is the issue and how can we tackle it.

Here, I would make a point about what Mr. Yechury said about the liquidity or the demand side that you cannot neglect the demand side. If there is a demand-supply imbalance, then something has happened to increase demand.

He mentioned a few things, that is, forward trading, speculation, hoarding, consumer demand, and if the inflationary expectations are that the prices would rise, you can take it for granted that they will rise even though 68 per cent of your people may be poor.

Why is demand for commodities increasing? Why are people buying more grain than they need when 70 per cent of the people cannot afford to buy the grain that they need? It is only because they expect the prices to rise. They will rise. Why is it so? Here, I would like to emphasise on the importance of demand. And by 'this demand', Mr. Sitaram Yechury, you do not mean demand by individuals. It means 'demand by those who can afford'. And if you have a realty boom, if you have a housing boom and if you have a stock market bubble, where is the money going? When you start pricking this particular bubble, the money has to go somewhere. The liquidity remains the same. Don't undermine the importance of demand; don't underestimate the importance of demand.

• Inflation, the silent killer

And my suggestion about what you should do is this. Let us sit together and decide we have to change the inflationary expectations. Then, the only way in which you can change the inflationary expectations in the short run is to move from soft measures to hard measures.

Then, you have to move to hard measures. And from the demand side, I would say, it is not the interest rate that matters - you can try if you want - because interest rates can affect things only over a period of time. But you have to take action to reduce the sources of demand. Every time, you are sterilising capital flows.

Sterilisation does not reduce the demand. Sterilisation replaces one piece of paper with another piece of paper, and that other piece of paper can raise the demand because you can always borrow against that. What I am saying is, you have to do something for short-term capital flows. That is the liquidity issue. Mr. Sitaram Yechury, you have to do something about the total availability of money in our country, just now, for purposes of buying, speculative trading.

How does speculative trading work? Somebody has to pay; somebody has to borrow; somebody has to give money. You will only do this if you expect to earn profits on that particular thing. So, you have to move from soft measures to hard measures. Some of things that my friend, Mr. Yechury, has suggested are worth considering. But that will not solve the problem unless you are able to reverse the inflationary expectations, unless you are able to show that you have reduced the total demand vis-a-vis the total supply.

• Inflation, the silent killer

It is an elementary truth that if you multiply the total supply by prices, it would give you a higher quantum of money than was the case four or three months ago. It is that simple. You have to take an effective set of measures which will move from soft measures to hard measures. These measure must attack the demand side strongly, and they have to be effective in the short run.

Interest rates are not effective in the short run; I will not go into the specifics of it because the Finance Minister of India knows all that. But if he decides to do something on the demand side, if he decides to do something for increasing the supply - it is not that nothing is being done - then, I think, we can tackle the problem.

But it has to be a non-political one. There has to be a consensus on that. It has to be non-panicky and it has to be straight, which people expect that yes, you are reversing the inflationary expectations and that you will succeed. If they believe that you will succeed, then you will succeed; if they believe that you are going to fail, you will fail.

Nominated Rajya Sabha member and former RBI Governor Bimal Jalan speaking in a debate on price rise in the Rajya Sabha