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| The story is food inflation | | Negative WPI does not tell the full story |
| Business Standard / New Delhi Jul 26, 2009, 00:50 IST |
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While the general rate of inflation has displayed a consistent downtrend since November 2008, moving into the negative domain last month, food inflation has defied all attempts to tame it, and is a matter of concern.
So while the macro-economic price situation is not a matter of worry, the inflation actually experienced by people is certainly a live issue. Food prices have continued to soar even as the wholesale price index (WPI) has declined, not only for items like pulses and vegetables but even of staple cereals, such as wheat and rice, which are heaped up in abundance in government granaries. The official numbers show that the wholesale prices of cereals, pulses and vegetables have spurted by between 12 and 20 per cent in the past one year. The wholesale price index, which showed a year-on-year increase of 7.1 per cent in cereal prices in June last year, increased steadily to 12.8 per cent by June this year. Similarly, the inflation rate in pulses has spiralled to 16.8 per cent, from a negative 1.3 per cent a year ago, and that of vegetables to a whopping 20.2 per cent from just 1.8 per cent in June 2008. What impacts ordinary people, far more than the general rate of inflation, is inflation in food prices because a sizable part of the poor person’s monthly budget goes to food.
Though the delayed and subdued monsoon would have contributed to food inflation in recent weeks, a host of other, largely commodity-specific, factors are also responsible. The prime reasons for the surge in the prices of wheat and rice are the liberal hikes in the minimum support prices (MSP) announced by the government last year; these become the benchmark for open market prices. Another contributory factor was the government’s flawed policies regarding grain trade; by imposing curbs of various kinds, including stock limits, on private trade, the government acquired a virtual monopoly over supply. And by cornering nearly 98 per cent of market arrivals in the peak post-harvest marketing seasons, public agencies reined in supplies in the market, thus pushing up prices.
The harvest last year may have been abundant, but much of the surpluses went into building up government stocks.
In the case of pulses, the country’s import dependence is quite high, totalling 4 to 5 million tonnes annually (out of a total domestic consumption of about 20 million tonnes), while the sources of supply in the global bazaar are limited. As a result, the international prices of pulses have ruled firm even while those of cereals have tumbled in the past one year.
Unfortunately, the domestic production of pulses has been stagnating, while demand has grown rapidly. Not only has there been no major breakthrough in pulse production technology, these crops have gradually been pushed to marginal lands with low fertility and no irrigation because of the availability of more lucrative alternatives.
Where perishables like vegetables and fruits are concerned, they require a very efficient marketing system, so that prices can be determined by demand-supply equations. This unfortunately is not there. Vital infrastructure in the form of cold stores, refrigerated transportation and organised retailing are, by and large, missing. Besides, the demand for these relatively high-value foods is rising fast, thanks to changes in the consumption pattern as income levels rise.
Thus, the level of food inflation in the country can be curbed only if the government’s grain pricing and trading policies are rationalised. Besides, there is a need for reforming and strengthening the agricultural marketing infrastructure to ensure transparency in transactions and fair returns to growers, to encourage them to produce more.
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