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Resource centre on India's rural distress
 
 

Cost-push element behind rise in food prices, says Pranab

“States should ensure effective public distribution system” 

Fiscal deficit at 6.8 per cent of GDP a challenge

Dip in exports due to low demand following economic downturn in foreign markets

Union Finance Minister Pranab Mukherjee on Thursday said increasing food grains productivity, ensuring effective distribution of subsidised essentials to vulnerable groups and allowing duty-free import were some of the steps taken to control the spiralling prices of essential commodities.

Speaking at the 109th Annual General Meeting of the Bharat Chamber of Commerce here, Mr. Mukherjee said that though he was concerned about the continuous rise in food prices, a ‘cost-push element’ was responsible for it.

“It has to be understood that a cost-push element is responsible for the rise in food prices … it emerges from the Centre’s decision to give fair and remunerative prices to farmers among others [procurement, transportation and stocking prices].” The situation rose from a “supply-side bottleneck,” he said.

Mr. Mukherjee emphasised the need for making the public distribution system more effective for the benefit of the fixed income group and the vulnerable sections of society. He stressed on the role of the States in ensuring the same.

“The State governments should ensure that subsidised food grains were given through effective public distribution system. Also the States’ de-hoarding mechanism should be strengthened to ensure that unscrupulous traders, who hoarded essential commodities, were brought to book.” he said.

Outlining a fiscal deficit at 6.8 per cent of the Gross Domestic Product (GDP) as one of the challenges facing the nation, he said the solution lay in expanding the revenue base.

“Fiscal consolidation is a must in this situation that should be 5.5 per cent of the GDP for 2010-11 and not more than 4 per cent of the GDP in 2011-12.”

On the dip in export figures for 13 months since October 2008, Mr. Mukherjee said the situation was mainly due to a low demand following the economic downturn in the markets of Europe, Canada, Japan and the U.S., which constituted 62 per cent of India’s export market.

“A lesson needs to be learnt from it is that unless Indian exporters diversify the exportable goods market, the situation will not improve.”

Exuding confidence that the GDP would grow by 7.75 per cent in 2009-10, against the Reserve Bank of India’s estimate of 6 per cent, Mr. Mukherjee asserted that his estimates were based on the positive performance of industry, manufacturing and service sectors, liquidity of the RBI and the steady flow of foreign direct investment.

The Centre would not “take resort to a premature exit policy [of stimulus package] before the recovery of the economy on a firm footing rather than in an elusive manner.”