The anti-inflation package hammered out by the Cabinet Committee on Prices (CCP) in a marathon three-hour-long meeting on Monday night makes it clear that the government is short of ideas. This is not to suggest that there are obvious solutions waiting to be tapped. The truth is that the nature of the current inflation leaves one with no easy answers""most of the price increase has been caused by international price movements, over which the government has little control. Thus, food prices (expressed in US dollars) have risen by an average of 62 per cent over the past year, and non-food agriculturals by 24.7 per cent. Metals have gone up by 4.4 per cent, after shooting up earlier, while oil has gone up by 85 per cent and gold by 53 per cent. Shipping rates have gone up with the price of oil, as has paper. Since most products are now freely tradable, domestic prices will inevitably mimic international price movements. Since these trends reflect global demand and supply balances, there is little that a national government can do to change the reality, except to play with domestic demand-supply balances by looking at how to stop exports and facilitate more imports. But most food items (including wheat and rice) cost more overseas than they do in India, so imports are no solution. What the government can do additionally is two things""provide a subsidy through the exchequer (which it has done for petroleum products) and push more foodgrain through the subsidised public distribution system (which it does to some extent, but with imperfect results because of the limitations of this distribution system). | |
| Since these can only mitigate the problem, and not provide complete insulation from global trends, there is pressure on the government to do more "" hence the show of crisis meetings and late night announcements, which do not mean much. The latest package of measures, like those taken earlier, remains focused rather narrowly on primary food products, notably rice and cooking oils, disregarding the products that have contributed in even larger measure to the price rise. But then, what can the government do about steel or cement prices, except cut duties and exhort manufacturers to be "responsible"? Such appeals, made over the past year, have had no effect. And formal price control will only create a black market. The real impact of the decisions on edible oil duties, export curbs on rice and stock limits on food items, is also likely to be marginal. The total weight of food products in the wholesale price index is 15.4 per cent, the rest being accounted for by product groups like manufactures; energy, transport and basic metals. In the food group, too, the items that have been short-listed for anti-inflationary action constitute only a part, the balance being made up by vegetables, fruits and non-vegetarian food items which have witnessed a steep price surge but have received no official attention. |
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| When it comes to essential food items, the present crisis underlines the need for domestic self-sufficiency to the extent feasible. The import dependence for edible oils is as much as 45 per cent, which makes it impossible to effectively insulate domestic prices from global levels. Besides, the bulk of the country's imports are of palm oil from Malaysia and Indonesia, which, quite often, raise their export taxes and export prices to corner the advantage of Indian customs duty reductions. In the case of non-basmati rice, a de facto ban has already been in place in the form of a rather high minimum export price of $1,000 a tonne, which automatically rules it out of the global bazaar. In any case, the government is holding a stockpile of nearly 22 million tonnes of rice, against the minimum buffer requirement of 12.2 million tonnes. Part of this could be offloaded in the domestic market to cool the market. |
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