Think long term

Need for deeper reforms to contain food inflation

The government's response to the escalation of wholesale inflation to a five-month high of 6.01 per cent in May from 5.2 per cent in April was speedy, but unfortunately the outcome of the package of measures devised may be mixed. The government, after a meeting of ministers and bureaucrats on Tuesday, announced a series of measures directed at food inflation, which rose to 9.5 per cent in May from 8.64 per cent in April - and might go further if the monsoon is subnormal. The main concern is the prices of non-cereal, high-value and protein-rich foods, notably vegetables, fruit, eggs, milk, meat and fish. Though the prices of vegetables as a group have tended to dip a bit due to seasonal effects, the gains have been more than offset by potato prices, which increased by 32 per cent. Milk became dearer by about 10 per cent; eggs, meat and fish by over 12 per cent.

The grain storehouses are overflowing. The government has announced the sale of some rice through the states. This will help. But it does not solve the real problem, which would require reform of the existing outmoded food management system. Siphoning off the bulk of the marketable surplus in the peak post-harvest marketing season, as is the case under the present open-ended grain procurement system, needs to be avoided to leave adequate supplies in the open market. At the same time, the available grain stocks would need to be kept at strategic locations to sell quickly if prices spike. Increases in minimum support prices, or MSPs, too, may have to be moderated to balance the interests of grain producers and consumers.

Vegetables need a different strategy. They are mostly short-duration crops, some of which can be grown more than once in a year. The farmers need to be incentivised to do so. The problem is when the government clamps down on exports, as the government announced on Tuesday. This sends out the wrong supply signal - and harms future supply. Overall, the government's promise to crack down on hoarding and to restrict imports sounds like the same knee-jerk reactions that characterised earlier attempts and is likely to meet with the same results. Even the pious admonition to take fruit and vegetables out of state-level agricultural marketing Acts is not new. While necessary, it requires more than statements, since it is a state-level decision. Persuading states to ensure expeditious enforcement of the new legal framework for agriculture produce marketing committees will be necessary to eliminate monopolistic control of regional markets over fruit and vegetables.

As for livestock products, increasing their availability in a short time is not easy, except in the case of poultry, which operates like a formal industry. Milk prices have already been raised by organised sector dairies more than once in recent months in anticipation of reduced supplies in summer. If the output dip is more pronounced than apprehended, skimmed milk powder imports can be encouraged to produce reconstituted liquid milk. Overall, food inflation does not seem entirely unmanageable - though it needs advance planning and result-oriented action, which should begin forthwith. In short, it needs a reform strategy. Measures such as those that the government announced recently are only short-term solutions. For sustainable results, there is need for deep-rooted reforms in the food procurement strategy and state-level marketing frameworks - through legal changes, if necessary.