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Resource centre on India's rural distress
 
 

‘Bad management to blame for food inflation'


Planning Commission Member, Professor Abhijit Sen, has observed that bad management of food grains and a high economic growth rate, particularly in the non-agricultural sectors, had led to spiralling prices of food grains.

Prof. Sen was delivering the Prof. L S. Venkataramanan Memorial Lecture on ‘Inclusive Growth', at the Institute for Social and Economic Change, here on Thursday.

Prof. Sen said the economic growth rate of 9 per cent led to increased demand for food grains and the supply commodities were hit on account of decline in food production due to drought last year. “The failure of food management by the Government” led to widening of gap between demand and supply, he said.

The only measure to contain the inflation was increasing the interest rates, which would hurt the growth rate. “We should not raise the interest rate that will hurt growth rate.”

Another way to contain inflation was to cut investment but now the Government has no power to control investment incurred by the corporate sector, he said.

Low growth rate in the agriculture sector, which was less than 2 per cent during 1999-2004, led to farmers' distress, and decline in the wages in the farm sector. High growth rate in the manufacturing and service sectors in the last decade led to increased demand and increase in the prices of food grains, Prof. Sen said.

Pointing out factors that forced the United Progressive Alliance (UPA) Government to adopt inclusive growth in the 11th Five Year Plan, he said falling wages in the manufacturing and agriculture sectors led to increased inequality among the people.

Wages, which constituted 30 per cent of the GDP in the manufacturing sector in the 1980s, declined to 10 per cent of the GDP in 2007 while the corporate sector profits increased from 35 per cent of the GDP to 60 per cent of the GDP during the same period.

“Squeeze in the wages” is one of the major reasons for the adoption of inclusive growth formula by the UPA Government, he said. The 9 per cent growth rate was possible in the coming years and to sustain the growth rate, there was a need to borrow from external sources.

However, increasing investment in the health and education sectors and tackling environmental issues were the major challenges in the future, he said.

Social auditing

Responding to a query, he said the Centre had allocated Rs 45,000 crore for the National Rural Employment Guarantee Act (NREGA) in 2009-10. Of this, nearly Rs 10,000 crore remained unspent. There was less corruption in the NREGA due to strict monitoring and social auditing, Prof. Sen said.

Dr K. R. S. Murthy, Chairman of the Board of Governors, said access to credit in the formal sector was important for inclusive growth. The ISEC Director, Prof. R. S. Deshpanade and officials of the Agriculture Department were present.