CURRENT INFLATION IN INDIA 23 because of the relative restriction of public spending which ensues during such periods.1 If there is a substantial slackening of demand in the in" dustrial sector, firms may increase their mark-up, with a view to ^protecting overheads^2; whether this increase succeeds in actually "protecting overheads" or not, it can be an additional factor stimulating an inflation in industrial prices in response to an agricultural price inflation. All these mechanisms for transmitting inflation from agriculture to industry have been operative in India recently, including the one last mentioned.8 This is not to deny that other autonomous factors like the sharp increase in prices of domestic and imported non-ferrous metals, the increased exports of sugar, the shortfall in output in certain sectors owing to power shortage, and more recently the increased oil prices have also contributed to the industrial price rise: but when agricultural prices have been rising as steeply as in recent months, some significant increase in industrial prices is inevitable, and given the overall order of increase in industrial prices, this "some" may well in fact constitute a large part of the total increase. Consequently, we shall make agricultural price inflation the central theme of this article.4 The Why and Wherefore The official explanation for the sharp increase in agricultural prices, as set out for example in the government's Economic Survey centres around three main points: (1) the performance of the agricultural sector has been consistently disappointing after 1970-71; (2) had this been accompanied by a ruthless cutback in monetary demand the order of price inflation could have been moderated: instead there has been a continued expansion of monetary demand reflected for example in the abnormally high levels of budget deficits in recent years; (3) both these factors together with such other exogenous causes as the disruption of market arrivals of wheat in a poor crop year, following the takeover of wholesale trade, not only resulted in a sharp price increase, but also created inflationary expectations which by inducing increased hoarding accentuated the price increase.5 These three basic factors of course operated within a context where the country could not import its requirements easily. This line of reasoning is confined not only to the Economic Survey, it appears frequently in discussions on inflation in the popular press as well. Let us examine its validity. It seems clear now that notwithstanding all the talk of a "Green Revolution^9, agricultural growth has markedly slowed down in the recent years; indeed it is not a matter of a few consecutive bad harvests after 1970-71, but a distinct deceleration in the trend rate of growth in agriculture. For example if we fit a semi-logarithmic trend to the indices of agricultural production (suitably "linked^9 to form a continuous series) for the years 1947-48 to 1964-65 and then extend it for the years after 1964-65, we find that the actual production in all subsequent years including the peak year 1970-71 falls below the extrapolated trend values. Objections