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LATEST NEWS UPDATES | Peeling The Policy Cipher by Lola Nayar

Peeling The Policy Cipher by Lola Nayar

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published Published on Jan 15, 2011   modified Modified on Jan 15, 2011

What’s Going Wrong?

    * Market intelligence remains a weak link; farm policies rarely reflect correct scenario
    * Extensive damage to crop in Maharashtra not factored in promoting onion, tomato exports
    * Middlemen make capital while farmers realise 10-15% margin, not enough to recoup losses
    * Government market intervention capacity limited to foodgrains and pulses

****

India’s worst-kept secret was finally revealed when the government threw up its hands in despair in the face of rampaging food inflation. After more than a year of assuring the aam aadmi that food inflation would soon drop to desired levels of around 6 per cent “within the next few months”, policy makers recently admitted to being foxed by the unseen factors that led to inflation numbers jumping back to 18.32 per cent in the week ended December 25.

The admission came from no less than former finance minister P. Chidambaram: “I am not sure whether we understand all the factors that contribute to price rise nor am I sure whether we have at our hand all the tools to control inflation.” Meanwhile, finance minister Pranab Mukherjee stuck to the politically correct line of assuring that measures would be taken to ensure the situation “improves in the next few months”. Efforts by Prime Minister Manmohan Singh to seek solutions have so far yielded no result other than pre-empt any “hasty” decision on sugar exports.

Is this then an admission of ineptitude, or are there factors beyond government control? Says Kaushik Basu, chief economic advisor to the finance ministry, “It is an utter mistake to think that it is fully within the control of the government to move prices of food up and down.” But who’s answerable when the government wilfully ignores market intelligence?

Reveals Shriram Gadhave, president, All India Vegetable Growers Association, Pune, “As early as October last week, we had informed the state government and agriculture authorities that 60-70 per cent of our vegetable crop—onion, cucumber, guar, chilli, peas, brinjal and tomato—had been damaged due to excess rainfall.” Yet, official sources reveal, the central government continued to issue export licences for onions and tomatoes till local prices skyrocketed. From April to November last year, India exported 11.5 lakh tonnes of onion. A large part went to Pakistan, which was facing severe shortage in the wake of floods.

Though the public outcry over the last few weeks has been largely over onion prices (which scaled Rs 80/kg), prices of most vegetables (barring seasonal produce like carrot, cauliflower, spinach and potato) remain above the reach of average consumers. Even fruits, milk, eggs, pulses and edible oil have started burning a hole in most pockets. For those who relish ginger and garlic, prices range up to Rs 300/kg for certain varieties.

Does the government really have no tools to control prices? Rajya Sabha member and agriculture scientist Dr M.S. Swaminathan states, “The government is unable to intervene and check vegetable prices largely because there was no proactive preparation for the management of prices.” Stressing the need for greater coordination between the commerce and agriculture ministries with regard to export of farm commodities, he says, “For example, onion was probably being exported until the crisis. Similarly, oilseed cakes are exported, although nearly 80 per cent of milk cost is due to feed and fodder prices. We urgently need a holistic approach on demand-supply and farmer-wholesaler-cum-retailer system.”

Krishan Bir Chaudhary of the Bharatiya Krishak Samaj feels the government should set profit margins of a maximum 10 per cent at all levels to make a difference. Currently, barring management of foodgrain buffer stock, the government has no stake in the market, nor does the farmer. With the state governments failing to be more proactive, and power politics very much at play in farm matters, Prof Sudhir K. Panwar of the Kisan Jagriti Manch states that the farmer is the last recipient if there are any windfall gains to be made. Currently, it is the speculators and hoarders who are making a quick buck, while farmers with some holding capacity will have got 10-15 per cent higher price, not necessarily enough to make up for production losses.

In the last few years, India has been moving from one food crisis to another. If the 2008 global crisis saw India make some expensive mistakes, with agriculture commodities prices scaling new peaks, the monsoon shortfall in 2009 brought its share of problems. A bountiful monsoon last year revived hopes of bringing food inflation under control for some time—till excessive winter showers in regions like Maharashtra ruined large tracts of crops.

Dr Ramesh Chand, director, National Centre for Agricultural Economics and Policy Research (NCAP), points to a recent report which says there are expectations of a 40 per cent fall in paddy production in West Bengal, a major rice-producing state. “If indeed true, it is a significant development. One should not fight shy of verifying such news, and the trade policy should be tweaked accordingly,” says Chand. The agro-economist points out that currently the “correct picture of crops and land is not emerging” as despite a lot of land being diverted for non-farm activities, it is not reflected in the revenue or agriculture records.

“We need to learn from our past mistakes,” stresses Dr Ashok Gulati, director in Asia, International Food Policy Research institute (IFPRI). He feels a mechanism must be put in place for market intelligence of commodities, to coordinate information on crop forecasting, damage to crops, trade, international prices, etc, and send a monthly report to government which in turn can decide what needs to be done on the policy front. “We do not have that currently, and so start digging a well when the house is already on fire,” he says.

While the market awaits corrective action by the RBI to ease inflation pressures, Indranil Pan, chief economist, Kotak Mahindra Bank, puts a finger on the pulse of the issue, saying whatever the price, food is something “I will not compromise on”. That predicament is a universal one. Indian consumers know it only too well.

Rising Retail Prices (Rs/kg)

        July 2010    January 2011
Onion      14           57.5
Sugar      31           34
Milk         24           25
Soya Oil   58           85
Tur Dal    72           69
Rice         22           23
Groundnut
Oil          112          133
Vanas-
pati         55           73
Potato     15           9
Salt         12           13
Wheat      14           15

 

Outlook, 24 January, 2011, http://www.outlookindia.com/article.aspx?270034

Tagged with: Inflation



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