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Resource centre on India's rural distress
 
 

Managing food prices


Even as reports pour in of a softening of food price futures, the spectre of food price inflation haunts households across the country. But to imagine that the inflation genie can be put back into the bottle through legislative fiat is the height of parliamentary fantasy. The Estimates Committee of the Lok Sabha has recommended just that! It wants new legislation to check price rise of essential commodities by capping the profit margins of trade intermediaries. As if the Essential Commodities Act is not enough, it thinks that more laws means better compliance! The worrisome situation on the food price front deserves all the policy attention it can get, but not through new legislation. The price of food items, including staple cereals, pulses, vegetables, fruit and sugar, are all under pressure for a variety of reasons and demand focused administrative action. A variety of controls and regulations with respect to stock limits on the essential commodities trade, which were eased to a large extent in the past, have gradually been brought back. Despite such action, food price inflation remains a problem. Raids conducted in the past few months on the premises of the traders of food grains and other basic commodities have failed to unearth any significant hoarding. Such measures have, in fact, proved counter-productive by affecting the availability of these goods in the market, pushing the prices further up.

It appears that two factors are playing a role in food price inflation. First, there is a supply constraint. This is pushing up wholesale prices. The Union finance minister has said so, holding lower production and a consequential supply shortage responsible for the high price of pulses, oilseeds, sugar and some other commodities. The domestic production of pulses is woefully short of requirement. Though the government has allowed duty-free import of pulses, supply in the international market is limited. The scarcity of sugar, on the other hand, is of the government’s making, though the country is in a position to produce enough sugar for domestic consumption and even exports. The same is true also of food grains. Thanks to last year’s record production of over 233 million tonnes of staple cereals, there is no real shortage of food grains. Rather, accumulating stocks, including in government godowns, may be depriving the market of adequate supplies. The second factor responsible for high food inflation, especially of the consumer price index, is market imperfections in retail. These too cannot be legislated away. Improving retail marketing of food items, both through a wider public distribution system and through a more efficient private retail trade, is the only way in which existing market distortions can be tackled and prices moderated. The government could consider permitting import of vegetables, especially potato and onion, and other commodities where there is a surge in prices to dampen inflationary expectations. Focused intervention in food and vegetable markets may be better than blanket legislation or even dramatic changes in monetary policy.