Kerala State Finance Minister Dr.T.M.Thomas Issac said the Union Budget for 2010-11 would result in a further escalation of the prices of all commodities and Kerala, being a consumer State, will be the worst affected by its proposals. Participating in a television debate he said the proposal to hike the duty on crude oil, petrol and diesel would take the already spiraling prices to a still higher orbit with common man receiving the brunt of fits impact.
For sometime now, news media is highlighting the march of “food inflation” and its impact on consumers. The Hindu report of
Dr.B.A.Prakash former head the Department of Economics,
A senior Reserve Bank of
Even though there are reports of a softening of food price futures, the specter of food price inflation is haunting households across the country like never before, undermining the budget of the aam aadmi.
Unlike employees in the organized sector who have been partly compensated by periodical wage and salary hikes based on the consumer price index, the workers in the unorganized sector have to depend wholly on the state to make good, at least in part, the erosion in their real income. If, in spite of all this, there has been no big upheaval it may perhaps be owing to the implementation of State-level schemes under which rice or what is supplied to all eligible families for a highly subsidized price.
In its ‘Economic Outlook’ for 2009-10, the Prime Minister’s Economic Advisory Council(PMEAC), cautioned that “in the short term, managing inflationary risks, particularly food price inflation, is the biggest challenge to the policy makers.”
The government had altered the calendar for releasing the inflation data since the middle of October, 2009. The Whole Sale Price Index(WPI) based inflation that was released till then at weekly intervals will now be made available once a month. The data on prices of primary articles and commodities—food and fuel inflation at the wholesale level—are however made available on a weekly basis. These data, when buried in the WPI index did not immediately reveal the extent of price rise even at the wholesale level.
There are a number of reasons for this change-over. The weekly WPI inflation data were not adequate for monetary policy purpose. Central banks the world over have been relaying on a representative Consumer Price Index for policy purposes. In
The Reserve Bank of
Because of the low weight-age given to primary articles(22 per cent) in the overall index, WPI gave a distorted picture of the food price inflation. Thus, even when food prices were going up, the official WPI remained benign because of the much lower price rise in manufactured items, fuel and power. As the price rise in food articles was captured more realistically than WPI, CPI remained stubbornly high—in the range 9-10 per cent. Hence, the new system of reporting only food and fuel inflation at weekly intervals and WPI inflation at monthly intervals has in a sense infused a measure of transparency and made government statistics more reliable according to some observers.
Official reports said the sharp fall in monsoon rains, 23 percent lower than the average and weakest since 1972, has affected agricultural production, leading to price escalation of food items. Media reports attribute the present situation to speculation operations and persistent shortages.
According to the agriculture ministry’s estimates,
A recent study by the Asian Development Bank(ADB) titled ‘Inflation Impact and Policy Responses—India’says: Indian inflation is hard to manage as the factors are often exogenous and not simply a consequence of a domestic demand-supply function. Prices are affected by import prices, trade channels, capital flows, monsoon and commodity prices. Thus keeping inflation under control requires efficient monitoring of data and the ability to react swiftly.”
Some experts have rightly argued that success of the measures to contain food grain prices will depend on coordinated steps being taken by the Centre and the States, on the one hand and among the relevant State government departments on the other. The Steering Committee on agriculture in the Eleventh Plan has suggested that in order to ensure coordination among the States and the Centre to augment agricultural production, Zonal Production Commissioners may be appointed.
A setback to the farm growth rate and emergence of double-digit food inflation have been singled out in the Economic Survey 2009-10 as major areas of concern. Pointing to an estimated minus 0.20 per cent growth rate in 2009-10 over 2008-09 in agriculture and allied sectors, and food management policies that let to sustained high food inflation, the Survey tabled in Parliament recently, advised the government to take serious policy initiatives to contain inflation and prevent it from spilling over to generalized inflation.
It categorically observed that rising food prices, spurred by expectations of shortfall in good production, had brought the issues of good security, food stock management and the need for improving food production and productivity to the forefront of national strategy. It pointed out that “the excessive hype about kharif crop failure, not taking into account the comfortable situation in respect of food crop and the possibility of an improved rabi crop, may have exacerbated inflationary expectations encouraging hoarding and resulting in higher inflation in food items.
The report of the U.N.Department of Economic and Social Affairs has assessed that in 2009, 13.6 million more people were pushed into the ranks of the poor in
A Mumbai-based Commodity Analyst, in a recent analysis wrote: “A close scrutiny will reveal that the Government itself is culpable. It has neglected agriculture, provided no strong policy support, pared down public investment and generally remained indifferent to the farm sector, even while staying obsessed with GDP numbers and the stock market indices.”
Academics and experts have stressed the need for a huge policy thrust towards national agricultural resurgence with large investment flowing into the sector. Food self-sufficiency never seems to be part of the national agenda now. Shortages are met through the easy option of imports. The situation could worsen in the future. India’s failure to be self-sufficient and its rising dependence on imports of a number of food commodities, coupled with poor planning and implementation of trade and tariff policies have encouraged the markets to rise.
The government’s policies are going horribly wrong and these are totally anti-farmer. Without thinking of the farmer’s plight, the government has allowed multination companies to do business in the retail and farm sectors. It has signed a free trade agreement with countries of the Association of South East Asian Nations(ASEAN) without thinking about its repercussions. Commodity exchanges and forward trading has also added fuel to fire, as the prices of produce escalate several-fold as they pass from farmer to the consumer.
Economists say that the time has come for ‘out of the box’ solutions to tackle the food inflation in the coming years, but not many path-breaking ideas are forthcoming. But changes in the current mindset and concerted efforts are necessary if one is to pre-empt suggestions like the recent one by the Estimates Committee of the Lak Sabha, which mooted a new legislation to check price rise to essential commodities by capping the profit margins of trade intermediaries.
Increasing protest demonstrations against food inflation allover the country
bodes ill for the polity.
