23 Jan 10 The food prices blame game
Today’ news reported that the Congress has put the issue of food price rise on the shoulders of the agriculture minister and the minister in turn has shifted the blame on to Mother Nature. Who is responsible? And who needs to take what steps to get us out of this?
Of all the economic imbalances that economies go through, inflation is the most dreaded one in India. Food inflation, in particular pinches the poor who constitute key vote banks.
So why has the current government allowed itself to be caught doing close to nothing about it?
There are a large number of factors that have created the current situation. So here is a list of the key ones that everyone is talking about:
- No advances in production – Production of foodgrains in India at the end of the current agricultural year in June 2010 is reportedly not much higher than the total production of 209.8 million tonnes in the year 1999-2000. Drought of 2009-10 is partly responsible for this
- Increase in minimum support prices to farmers
- Increase in costs of inputs including labour, thanks to NREGS
- Increased spread between wholesale and retail prices in recent years (It is not really clear why this has happened)
- Pure and simple Mismanagement – Sugar is one case –Complete failure to predict trends in cane and sugar production. More recently, imported sugar was reportedly held up at the port awaiting release order for over two months. Another is the non release of stocks of food grain by the government – it is reportedly holding 50 million tones in stock!
- Hoarding – The left has put the blame here and the prime minister has promised to crack down on it. However, as some analysts have pointed out, hoarding certainly can’t explain the increase in prices of perishable items like vegetables, fruits, eggs, etc. Also, pulses cannot really be hoarded for a long time, as all housewives know; they are prone to spoiling very easily due to insects and pests.
On the demand side, a key factor is the rise in population and incomes.
RBI, the traditional guardian of the inflation rate, is helpless here. The pressures are mainly from the supply side. Clearly, a failure to undertake agriculture reforms and gross mismanagement seem to have got us into this hard place. Whose door does this lie at?