The Price Of Naan Goes Up

I was outraged when told about the increase in naan prices as my colleagues economic/business journalists echoing the official line had been dishing out stories saying that inflation was under control. So quite agitatedly I asked my dhabewala why he had increased the price of naan when prices were going down? He said: Babuji kis duniyach rahende ho(Sir, which world are you living in?). Have you ever asked your madam what the price of atta is?. It is selling at Rs 10 a kilo.

In fact, when I asked my colleagues whether any of them knew the price of atta, they drew a blank. Of course, they had the price of new car models, air-fare between Delhi and Bombay etc on their fingertips. The fact that even the official price index showed that the annual rate of inflation of food articles was in double digits escaped the notice of most of them.

 

In fact, in Indias context, an important fallout of globalisation and liberalisation has been the moderation in prices of manufactured goods and increase in the prices of food articles. The rationale behind this is that in a closed and controlled economy, there is huge positive protection of industry and negative protection of agriculture. The removal of negative protection of agriculture is text-book orthodoxy with reformers.

In 1992, I went to Washington. There I met Mr Moin Qureshi, who later became the caretaker prime minister of Pakistan. He strongly recommended that India must remove negative protection of agriculture, which meant increase in food prices. When I said: Have you ever asked your Begum what the price of rice in Washington is? It is almost the same as in India. But the per capita income of an American is $30,000, whereas for an Indian it is just $300, Mr Qureshi had no answer.

During the reform period, the issue prices of rice went up by 120 per cent in four years. After he lost his office, Dr Manmohan Singh defended his policy on food prices. He said: Farmers of Punjab and Haryana were subsidising consumers of Kerala and West Bengal. At that time I interjected: What a great stroke of political economy. Your party has lost in Punjab, Haryana, Kerala and in West Bengal.

This years increase in food prices is being attributed to the shortfall in production. One can understand big increases in procurement prices only if they serve either economic or social/political functions. They seemed to have served neither. Higher food prices have not resulted in an increase in food production. Even if last years shortfall in food production is excluded, there is no sign of the massive hike in procurement prices having pushed up the production trend line of the last 15 years.

Similarly, surplus farmers of Punjab and Haryana hardly require extra-economic considerations to increase their earnings. Cross-country studies by the World Bank show that in agriculture, prices alone dont do the trick. Prices combined with increased public investment in agriculture produce results. But in India, public investment in agriculture has been reduced. As a result, we have the worst of both worlds price increase for the consumer without increased supply.

This government is carrying on with the Manmohan Singh legacy in this regard. It has decided to increase the minimum support prices of wheat by 9.8 per cent whereas the hike in the prices of agricultural inputs have gone up by less than half the rate. The rise in procurement prices is sure to be passed on to the consumers soon or later.

The proposed increase in procurement prices is a real bonanza for rich farmers. What else could one expect from a government which in its Budget gave subsidy for purchase of big tractors. Its Common Minimum Pogramme (CMP) has promised not merely fair but remunerative prices for agricultural produce. Remunerative prices often are higher than the market prices.

The present nature of inflation hurts the poor more than the upwardly mobile middle class. The poor is doubly cursed. The blast of advertisement campaigns induces him to buy certain consumer goods even at the cost of food. When he has little money, he chooses to buy some consumer item rather than save for lean days. When his earnings are down, he often goes to sleep hungry or on a half-full stomach. In a system of one-man-one-vote, this poor man can prove to be a dangerous political animal. His alienation is one of the factors behind the present political instability and uncertainty.

But alienation may not remain confined to the poor. The macro-economic situation is fragile. The easy-escape route of massive disinvestment which can provide a breather, does not appear to be wide open. For the third year in succession, the disinvestment target is likely to be missed. If the government fails to bite the bullet of increase in the prices of petroleum products, it is just a matter of time that either general inflation will cross double-digit or interest rates will touch 20 per cent. And it is then that all the fun for a large section of the middle class will also be over.