Saturday, December 26, 2009

The Unstoppable Food Price Rise

India is the country, where governments both at the Centre and in at least one state have been voted out over soaring food prices. While the government reviews the pricing of cereals, pulses, fruits and vegetables in the light of food inflation crossing 20 per cent fuelling overall inflation the statistics on wholesale prices present a grim picture. But for hundreds of millions of Indians across the country, the steep climb in food expenditure has been a harsh daily experience for some months now. According to official data, the prices of rice and wheat have increased by 11.75 per cent and 12.6 per cent, respectively, on a year-on-on year basis.

Spurred by the soaring prices of essential food items like pulses, potato and other vegetables, the annual rate of increase in the prices of food items soared to 19.95 per cent the highest in more than a decade as supply shortages hit hard. Food inflation stood at 19.05 per cent at the end of November. There are food items where the government has no such intervening role; and their price trends tell a more compelling story. Thus the price of bajra has gone up by 27 per cent, and that of dals by 60-70 per cent. The story applies to vegetables as well. There is also the strange case of sugar, which is sold at regulated prices by the government in open markets as well as through the PDS. Over the past year, its price has gone up by 125 per cent in wholesale markets across the country. The same story applies to the diets of non-vegetarian Indians. Mutton price has risen by 33 per cent this year. In the poultry sector, the price of chicken has gone up by 29 per cent, while egg price has doubled. The price of fresh water fish is up by 76 per cent.

But Mr Sharad Pawar is in no mood to accept the neglect from Govt’s side and laments that the soaring price is a global phenomenon, the government is making determined efforts to contain the prices of food grains and essential commodities, unprecedented rise in prices of essential commodities have created a serious difficulty for people. He also added that one of the reasons for rising prices can be attributed to this year's climatic conditions, but added we are confident that the policies of the government will ensure that rise in certain essential food commodities will definitely be brought under control, which warrants more intervention by the state governments in the market.

Some in the government view the current price rise as seasonal, mostly affecting fruits and vegetables, and feel that when the new crop arrives in January and February, rates will ease up. Others are less sanguine. They argue that while drought was undoubtedly a factor, ineffective action against hoarders remains a major stumbling block. Food prices are not going to come down anytime soon as the government expects the supply-side constraints to continue in the short-term due to a drop in summer farm output on account of poor monsoon and floods in some parts of the country, the finance ministry said in its mid-term review but hoped to stem spiralling prices through imports.

A parliamentary committee has pulled up the finance ministry for its failure to intervene timely and squarely to address price rise with due seriousness. The committee recommended that a comprehensive food pricing management policy be formulated not only to provide the much needed relief to consumers but also an antidote for the growing economic imbalance in the country. In its analysis of the causes behind the price rise, the committee noted wide variation between wholesale and retail prices in commodities like rice, pulses, potato and onion suggesting artificial shortage and spiking of prices by intermediaries.

Economists feel that in the face of soaring food prices the immediate objective of the RBI will be to curb inflationary expectations by adopting tight monetary policy. RBI Governor D Subarao recently said “If food price inflation persists for long, they can fuel inflationary expectations and the monetary policy will have to take a view on this.” The government has already asked states to ensure that the nation-wide public distribution system delivers foodgrain at controlled rates to the poor. It may follow this up with open market sales at lower prices for the middle class.

Rise in prices of primary articles of consumption of the common man that has been occurring in the recent times is indeed a cause of concern, and this needs to be attended to on an urgent basis. The government can augment supply through imports, it expressed doubt that this option may not be available for certain commodities such as pulses, available only in limited quantities in the international market.

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