Advice worth heeding

How to bring down food inflation

In the last few weeks, the Commission for Agricultural Costs and Prices (CACP) has offered some sensible advice to the government on policy issues concerning the country's farm economy. The pity, however, is that such well-meaning counsel, conveyed through informal discussion papers, is not taken with the seriousness it deserves. The latest issue raised by the CACP for this purpose relates to food inflation, which has remained in double digits since 2008. Predictably, the CACP study has virtually exonerated the annual hikes in the minimum support prices (MSPs) of crops from the charge of pushing up the prices of staple cereals, even while finding fault with the government's excessive stockpiling and imperfect public distribution system. It has identified three macroeconomic factors responsible for nearly 98 per cent of the food inflation: the ballooning fiscal deficit, rising farm wages and the impact of global prices on the domestic market. It has, of course, also mooted some well-considered strategies to address these key issues.

The CACP's assertion that the influence of international food prices on domestic inflation is almost as strong as that of farm wages, although less than that of fiscal deficit, seems a little odd. For, barring pulses and edible oils, India is not a major importer of any other food item of mass consumption - neither livestock products nor vegetables and fruits, which have been counted among contributors to the unrelenting food price spiral. But its suggestion for liberal and stable policies governing the external trade of agricultural commodities is unexceptionable; the frequent moratoriums on imports and exports hurt growers' interests and deter investments in productivity-boosting measures. The government also needs to consider the CACP's suggestion to align domestic prices with international prices through an active and variable tariff structure rather than blanket bars on exports and imports.

Significantly, the CACP has also proffered some well-intentioned suggestions to tackle the other two inflationary factors: the fiscal deficit and wages. For instance, food and fertiliser subsidies - for which this year's Budget has set apart nearly Rs 1.56 lakh crore - can be scaled down substantially by switching over to direct cash transfers. The CACP reckons this would reduce costs by Rs 60,000 crore in the current year itself. The impact of rising wages on production costs can be reduced to some extent by enhancing crop and labour productivity through increased use of machines. This will, however, be possible only if fragmented farm holdings are consolidated and the land lease market is legalised to facilitate the emergence of holdings of economically viable sizes. Indeed, many of these measures are neither wholly novel nor unknown, but adequate political will is needed to put them in practice.