Wednesday, 20 November 2019

Inflation The Flip Side Story

Updated: December 26, 2009 5:43 pm

This winter has been a season of general discontent—every consumable item seems to be on a fast track on the price front. Forget tomato, onion and potato—basic ingredients in most Indian meals—even daal- roti is now moving away from the common man’s reach. Sugar is nothing less than Rs 30-32 per kilo. Pulses and edible oil prices have become so princely that some families are finding non-veg food a cheaper option.

For most of us, the word ‘inflation’ is a bit of conundrum, with our economists constantly warring over which is a better index — Wholesale Price Index (WPI) or Consumer Price Index (CPI)! In simple terms, inflation in India is calculated as a Wholesale Price Index of 435 goods taking 1993-94 as base year. This is, by far, a unique measurement of inflation by any nation in the world and suffers from some serious shortcomings.

I tell you why. Recently, the central government said the wholesale price inflation was 1.51 per cent in the 12 months to October 17. On the other hand, in the week ending November 14 food inflation index touched 15.58 per cent. That explains the backbreaking price rise for the average Indian consumer. So, can we rely on the WPI?

No, we can’t as WPI is often criticised for its low weightage to food items (22.02 per cent) and food is undoubtedly the largest proportion of consumer spending in India. I think WPI has more bias towards the items like fuel, crude oil, manufacturing, etc. When we consider food and vegetable prices we can’t see any deflation (fall in price in comparison to a given time period). On the contrary, prices of rice, sugar and fast-moving consumer goods (FMCGs) have only been going up from last year.

In fact, food prices went up by 13.39 per cent in the last 12 months (as on October 24). More alarming is the rise in vegetables prices as much as 62.42 per cent (April-November 2009) compared to last year’s prices. Pulses rose by 35.6 per cent, wheat by 12.53 per cent, rice by 11.89 per cent, milk by 11.36 per cent, and fruits by 10.97 per cent, over last year.

This obviously indicates that UPA government’s price control measures are not working. Reserve Bank of India has revised its annual inflation estimates from 5 per cent to 6-6.5 per cent for the year ending March 2010. Indian agriculture is largely dependent on monsoon, even today. Therefore, a weak monsoon in the current fiscal is likely to put further inflationary pressure on the food prices, as India plans to make up for the supply deficiency through the import of rice.

In addition, the extremely high proportion of food reserves in the government’s possession — more than 5 per cent of which is wasted every year — also plays a large part for the current food shortage and consequent price rise.

Many promises, little action

Numbering crunching gives little comfort to hunger. But does this government have an overarching strategy — or are we rowing different boats in different directions? The Cabinet Committee on Prices, chaired by Prime Minister Manmohan Singh, recently reviewed the availability and prices of the essential commodities. But beyond promises, there seems to be little action.

Heckled by Rajya Sabha MPs on the unabated price rise of food items, Union Finance Minister Pranab Mukherjee lost his cool and made news albeit of the different kind on December 1, 2009. Previous week, he and his colleague Union Agriculture Minister Sharad Pawar fared better in Lok Sabha with less than 35 MPs showing up to discuss a topic as important as rising food prices.

Of course, it was good to hear Union Agriculture Minister Sharad Pawar saying there has to be a “collective effort” to tackle this grave issue and that the government was “quite serious” about improving agricultural production and curbing price rise of the essential commodities.

Of course, we have the convenient excuse of drought and disease. Onion prices have shot up because of drought in Maharashtra, and hit by a disease the potato yield in West Bengal has gone down and ‘kharif’ the summer crop suffererd due to scanty rains all over the country.

But the government has to factor in the impact of climate change which is also resulting in an increase in frequency, intensity and duration of floods, droughts, heat waves and extreme precipitation events. In addition, climate change is already showing a negative impact on agricultural yields and productivity in several locations.

In India, there is growing evidence, based on current research, of agricultural yields declining on account of climate change, particularly in wheat and some other foodgrains. As changes in the climate become more serious, these impacts would affect human society far more serious.

However, according to Mr Pawar, the good news is that the price of wheat and rice are stable. But he did admit that pulses and sugar prices have been shooting up as has been the case for onion and potato. All we have to do, prescribes the Agriculture Minister, is to wait for ‘Rabi’ the winter crop. But at the meantime what happens to the poor consumer hit by over 15 per cent inflation in food prices? And this graph is climbing week per week.

According to the UPA government, just two basic food items have fuelled this inflation doubling of potato prices within a year coupled with a 30 per cent price hike in onion. And the prescription from the Centre is that the states are not doing their best to crack down on black marketing. “Only 156 people have been detained (Jan-Oct 2009) as reported by the states,” rued Mr Pawar.

Finance Minister Pranab Mukherjee did some neat parrying too during the debate, saying the shortage of food was more due to “mismanagement by some of the states”. And Mr Pawar scored brownie points by telling the Lok Sabha that the Centre is likely to extend a ban on ‘futures trading’ on sugar beyond December. As of now, there is a ban on ‘futures trading’ on rice, tur and urad dals (lentils).

Vanishing food self-sufficiency

India achieved self-sufficiency in food, produced a record 131 million tonnes of food grains in 1978-79, and became a net exporter of agricultural produce. Among the visible results of Green Revolution were increase in agricultural land under high-yield variety seeds (HYV) and a jump of over 30 per cent in the yield per unit of farmland.

The latest findings by Credit Suisse in its report Asian Food and Rural Income warns that India today stands on the brink of losing its much cherished self-sufficiency in food. Demand for food is likely to grow at a rate of 3-3.5 per cent per annum over the coming years, driven by population growth. The increase in the domestic food supply is at a much lower rate which leaves India open to the need to import food to meet its domestic demand.

The obvious solution is to go for Green Revolution Phase II, but that means the government of the day will have to take some very hard decisions and acknowledge the corporates as confidence-building stakeholders. The state governments and the state-oriented allies in UPA—like Trianmool Congress or Dravida Munnetra Kazagham—have to measure up to the task as responsible federal units, and not pull in diverse directions.

By Abhijit Sinha

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