A major difficulty with economic analysis in many countries is the urge to find domestic causes for domestic problems -- a kind of "analytical nationalism" that does not sit well with the new era of global integration. Thus, instead of looking for monopolist behaviour, we perhaps ought to have focused on what was happening in India. Instead of screaming for the blood of hoarders, it may have been better to take a look at the world market situation for foodgrains -- you see the drift of my argument, right?

Nevertheless, let us take a fresh look at domestic price trends. Recent inflationary price rises has been led by food prices which have risen faster than non-food prices, especially since end-2005. The month-to-month rice prices behaved rather oddly in 2005-06. The post-harvest price decline in November-December was short-lived, while prices actually registered a rise in May-June in Dhaka markets, instead of a price decline after the major boro harvest -- an unprecedented phenomenon! In the meantime, what has actually been happening to domestic production of foodgrains? Production increased by 6-10 percent in 2005-06 (depending on whose figures you trust) over the previous year. Why then would post-harvest prices rise?

You should have been able to guess by now that I would soon want to point figures at foreigners! But let me just put in a quick word on "demand." Given the high growth rate of GDP over the last few years, per capita incomes have been steadily rising. Workers and labourers too have benefited -- I know that this is difficult to believe, but that is exactly what the data shows. For example, the wage rate index (after taking inflation into account) rose from 125 in 2000-01 to 149 in 2005-06. In addition, the government has been following an expansionary monetary and credit policy -- all suggestive of a steady build-up of demand pressure on the market.

Unfortunately, supplies did not manage to keep up. We are of course short of many things -- onion, dal, baby food, soyabean oil, sugar, petrol, nappies -- all of which we have to import. As it happened, the exchange rate moved steadily against the Taka making these imports more expensive, while at the same time, fuel prices shot through the roof -- exerting huge pressure on our foreign exchange reserves which, mercifully, was eased by accelerated remittance flows (thank you, guest workers). At the same time, the world market in foodgrains experienced considerable instability, as unexpectedly, countries like India entered the market as a large buyer in the face of a domestic crisis (yes, here it is finally, the link with India!).

Why is India important? For one, we import many things from India (and not always officially), especially rice and other food items. Whenever we have run short of supplies, all we have had to do was play around with import duties to encourage goods to flow across the border. And this of course, was a very sensible policy. For the first time in the 1990s (and after huge debate), we allowed the private sector to engage in food imports, and we have never looked back since.

Private traders took to this new opportunity as fish to water, quickly opening up deep cross-border import channels with India. It would not be wrong to say that Bangladesh's food security depended closely on Indian surpluses, which as some of you may remember, used to be enormous -- I mean we are talking about gigantic food reserves and a huge, complex public food distribution system that evolved into a dinosaur of sorts, but a benevolent dinosaur, as far as Bangladesh was concerned -- for this meant that our own food reserves needed to be rather modest.

Alas, the Indian food regime has been changing rapidly, causing deep discomfort within India itself but going largely unnoticed and without comment here in Bangladesh. I guess our Indologists have been looking at other sectors (music, literature, dance, etc). As an aside, do we really have anyone who watches economic trends in India, or is this still regarded as a waste of time? At any rate, here are some facts on recent Indian trends (cheaply downloaded from the internet):

• Food reserves held by the Food Corporation of India has declined dramatically (from over 100 million tons to around 12 million tons).
• Drastic elimination of food subsidies undertaken.
• Poor harvests have compelled large import levels ( reaching a 30-year high in 2005-06).
• Indian inflation rates have been higher than ours (at over 8 percent), also led by food prices.
• World price of rice, wheat, sugar and soyabean has been climbing sharply.

  Well, I think the case is now pretty much closed: Bangladesh's price spiral is strongly linked to regional/global forces and closely mirrors developments in India. Our economy may be even more fundamentally linked to India than we may have suspected, with even small price differences leading to flows of goods and commodities, either way.

  Rising real wages in Bangladesh suggests that adverse effects of the inflation may have been off-set somewhat but this would be of little consolation to those whose nominal earnings have not changed. Under the circumstances, what should we do and not do?

  It would be foolish and wasteful to try to revive TCB. The notion of open market sales e.g. through BDR (presumably at a subsidy if all costs are considered) is interesting (mimicking OMS of rice/wheat), and seems to warrant a closer look. I am all for such subsidies.

  All our policies (including monetary, fiscal, credit, interest rates) need to be geared to sustaining growth; and finally, market confidence (that is down to a low ebb) must be restored ASAP. At the moment the only business that seems to be flourishing is the mattress making business with huge orders pouring in, I am told, as people desperately search for alternative ways to park their cash and valuables.

  K.A.S. Murshid is Research Director, BIDS.