Wednesday, January 19th, 2022 09:43:58

Rocketing Prices

Updated: December 26, 2009 5:41 pm

Millions of households in the country have been engulfed by the haunting price rise. Worse is the fact that India’s vast population, majority of which is poor, is hit the hardest by food inflation, writes K Anjna

Rita Kumari, 31, a resident in east Delhi, last Thursday was relieved when she managed to wrangle a big rise in her monthly budget from her husband, citing rising food price inflation. But she knew little that her weeks of persuasion would come to naught in a matter of seven days. Kumari had never imagined that the rising food prices had another shock in store for her and her family. Kumari is not the only one; she has millions and millions of housewives for company in getting the food price shock.

            The government sheepishly announced on Thursday, December 03, 09, that while overall inflation stood at just 3 per cent; food prices inflation had risen to an unpardonable 17.5 per cent. Prices of rice and wheat have gone up in double digits in one year (10 per cent). Onions are up 30 per cent and potatoes at 95 per cent. Millions and millions of households in the country have been engulfed by the haunting price rise. Worse is the fact that India’s vast population, majority of which is poor, is hit the hardest by food inflation.

            A senior opposition leader (for a change picking up an issue that impacts the common man on the street) said, “Government, which prides itself on having some of the best economic thinkers in this part of the world, is watching like a mute spectator. There is no action plan to stem the price cauldron.” It is ironic indeed that with great economic wisdom at its disposal, government resorted to merely putting the blame on everybody else, including the weather gods, but itself, for not being able to contain the rising food prices.

            This, when UPA political managers know pretty well that food price rise is an issue that might well snowball into a political crisis, which in turn, would derail the ‘aam aadmi’ plank of the Manmohan government. There was a loud talk already of nation wide protests against food price.

            An angry Finance Minister Pranab Mukherjee, who displayed unusual aggression when confronted with the truth, needs to look for solutions rather than indulge in meaningless finger pointing. So far the government has held forth a weak defence arguing that the crisis was a result of supply constraints as the worst dry spell in nearly four decades and floods in parts of the country, and that in turn gravely hit the farm output.

            The Finance Minister has said that the main reason for the food price is the shortage of the essential food items and the disparity of demand and supply. Global shortage of some commodities has also hammered the domestic supply, he added.

“Food prices must be controlled,” said C Rangarajan, chairman of Prime Minister Manmohan Singh’s Economic Advisory Council. “Otherwise, they (rising food prices) have a tendency to lead to manufacturing inflation…. This will require monetary action by RBI (the Reserve Bank of India),” he told the media.

            The blame game has begun with government keen to shift the ball to the central bank. There is a view that RBI’s policymaking committee did not take significant steps to tighten monetary policy when it met in October because it was afraid of jeopardising the economic recovery. But the economy expanded by 7.9 per cent in the second quarter from a year earlier, the fastest rate in 18 months, creating hopes of a durable rebound.

            The Finance Minister has also found fault with the state governments as well for what he termed as the poor food cycle management that resulted in shortage of some items and high prices. “In one state I found, because of overgrowth of potato production, they (state government) could not buy it. Since there was not adequate storing facility, it was simply dumped on the street,” Finance Minister told the media. He argued that the blame for the price rise couldn’t be put squarely on the Finance Minister or the Agriculture Minister. “Surely, it is bad management (of some states).”

            The blame game politicians play does not in any way take the heat off the consumer. India’s widely watched annual wholesale price inflation WPI was at 1.34 per cent in October, but the benign headline number reflects the effect of soaring fuel and commodities prices a year ago. The WPI index has already risen over 6 per cent from the beginning of 2009/10 financial year that started in April. Economists have said the index could rise to as much as 8 per cent by the end of the fiscal year—above the central bank’s perceived comfort zone around 5 per cent.

            One of the drivers behind the rising prices is of course the uncertain weather: A weak monsoon the weakest since 1972 followed by flooding has hit output, squeezing supply and thus driving up prices. DK Joshi, director and principal economist of Crisil credit rating agency, told the media that the depreciation of the Indian rupee also pushed up prices in an import-dependent country like India.

Food Security: An Uphill Task?

High economic growth rates have failed to improve food security in India leaving the country facing a crisis in both its rural and urban economy.

In this gloomy scenario the World Summit on Food Security was convened in the third week of November in Rome, and the buzz leading up to it had focussed on what it would take to produce enough food to feed the world. It’s an issue that sounds simple enough on the surface—humans have been growing food and feeding themselves for millenia—but each locale around the globe presents a unique challenge.

Factors like the climate, government, economy, culture, and food traditions all play a role, in differing levels, in each foodshed around the globe. When it comes to food security, it is a real hotspot in the 21st century in India.

The farm industry in India hasn’t changed as quickly as most other industries over the past 20 years; as a result, agriculture’s share in India’s economy continues to shrink, down to 17.5 per cent from almost 30 per cent in the 1990s. That’s leading to a dangerous either-or scenario: Without enough food to feed the exploding population, it’s become a dance between high prices and shortages, leaving many Indians without enough to eat.

But why is the agricultural share in India’s economy is shrinking? Not a lot has changed since the Green Revolution of the 1960s, making it increasingly difficult for farmers to turn a profit. As a result, more and more are leaving farming; a survey by a government body called the National Sample Survey Organization found that 40 per cent of Indian farmers would quit farming, if they could. That’s a big number for a big country where two out of three of the one billion-plus live in villages.

Then is it time for a second Green Revolution in India? Farming is flagging, other industries are rapidly passing it by, and, without upgrades—technological and methodological—it isn’t attracting a new generation of farmers to the land. Some feel that the solution is similar, in theory, at least, to the one employed a half-century ago. It’s time for a second Green Revolution.

“The increase in yields in the past decades have been insignificant. India sorely needs another Green Revolution,” says Kushagra Nayan Bajaj, joint managing director of Bajaj Hinduthan, India’s top sugar producer, which is importing raw sugar after a drought ravaged the domestic cane crop. But it will require a whole new set of tools, this time around.

Environmental damage wrought by the first revolution—degraded soil from pesticides and fertilizers, mismanaged groundwater—makes it a tougher challenge this time around. In Punjab, which set a prime example during the first Green Revolution, groundwater reserves have declined rapidly, and there would be very little water available for farming in the state. This could severely affect the food security condition in India. Government should realise the gravity of the situation and allocate funds for research to conserve groundwater.

How can India achieve food security? The quick answers—allowing genetically modified crops, greater investment in irrigation, better economics in farming and greater government attention to agriculture—all offer short-term relief, but, unless more sustainable food systems are introduced, none will succeed in the long term.

There’s no doubt that something like a second Green Revolution has great potential to transform India’s food production capacity and bring it up to levels that will sustain the population as it continues to grow; however, unless sustainable methods are employed—organic agriculture, for example, that feeds the soil and retains more water as crops grow—we’ll be talking about another Green Revolution on the horizon in another 50 years.

           By Niharika

Economists argue that a lower yield for summer crops and the rise in global prices helped push up inflation. There is fear that demand-side pressures might start showing up from December. There is a wide-spread consensus among economists that going forward the monthly inflation would stand in the 7 to 8 per cent range by the end of March 2010.

            Observers say that such huge price increases in a country, where the average worker earnings are meagre, might lead to a serious political turmoil and instability. According to figures released by the Commerce Ministry, potato prices have more than doubled and onions have become dearer by 27 per cent in the last 11 months. Both potatoes and onions are staple vegetables in Indian households.

            Not only vegetables but also other food items have also registered a steep rise in prices. The common ‘dals’ or pulses, wheat, rice, milk and fruits have become costlier by 11 to 35 per cent, according to official figures.

            The winter of discontent might hold a few more shocks. Summer-sown rice output will likely be 69.45 million tons, down from the previous year’s 84.58 million tons, according to the government’s first advance estimate of the summer season crop.

            The data showed also that production of pulses is expected to fall by 7.5 per cent to 4.42 million tons. India imports about a fifth of the pulses that it annually consumes.

            Government says it was deeply concerned about the rising food prices and has assured the Parliament that it would take fiscal and monetary steps to deal with the issue. In a bid to hold the price line, the government has already banned export of all food items, including wheat and rice, with the exception of the premium Basmati rice. The government has also asked the states to crack down on black marketers and said it was also considering a ban on futures trading on sugar. “We will see that hoarding and black marketing will not be there,” Agriculture Minister Sharad Pawar said. He noted that the states had detained 156 persons on charges of hoarding during January-October, “but I think they should take more action in this regard’, he emphasised.

            The big question from consumer perspective is to examine what government should have done and has not done. To begin with agriculture has over the years become a big victim of political apathy. Politicians of various hues treat agriculture with kid gloves not taking decisions since the subject is fraught with political consequences.

            A top economist said, “There has not been a single big idea from the UPA government in its current and earlier run that would unshackle agriculture from its woes. The best a politician would think for agriculture in the country is the politically wise but economically unsound decision of subsidy through a series of loan waivers which in, turn threaten to make otherwise sound banking infrastructure unviable.” The agriculture sector needs a radical thought process that looks at first enhancing the production levels as also building management expertise in inventory management. “We are deficient in production, and top of that we do not have the mind to apply to maximise returns on whatever we have in hand,” said another economist. It is true that the whole food chain needs a complete overhaul if one were to ensure that the crisis does not escalate every year.

            But for the present crisis, analysts say the government needs to quickly get into war mode, and do the following: release food grain stocks (in a staggered manner). The analysts argue that there is a need to tap into the wheat and rice stocks immediately.

            Experts say that India must quickly get into procurement of three key commodities—potatoes, onions and pulses—by going in for imports. This ought to be done on a war footing. India does not have any worry on forex reserves and when it can buy gold why cannot it buy essential food items that feed the vast population of the country.

            There is a strong case, according to experts, for state government and centre (without scoring brownie points) to get together to rein in two critical elements in the food delivery chain: the black marketers at the mandi level and the retailers, who connect the supply to the consumer. Profiteering from a national tragedy such as a food price crisis ought to be made a serious offence and punishment awarded quickly to send a strong message.


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