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LATEST NEWS UPDATES | Rising prices: Top foodgrain producing states worst hit

Rising prices: Top foodgrain producing states worst hit

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published Published on Aug 30, 2010   modified Modified on Aug 30, 2010


Major foodgrains producing states have been the worst hit by rising prices, thanks to the Centre’s decision to pay more to farmers for their produce.

Although inflation, as measured by the consumer price index (CPI), has been in double digits for nearly six months, there are several states where CPI in the rural region has been around 20%. A look at state-wise consumer price index numbers shows that pre-dominantly agri-based states such as West Bengal, Punjab and Haryana have seen steeper price rise than others.

Consumer prices in FY10 rose the most in West Bengal at 20.9%, followed by Haryana at 20.9% and Punjab at 19.7%. The all India average for the same period was 15.8%.

Rising food prices have been one of the major drivers of inflation. Yet, the government has been paying farmers more by increasing the minimum support price for various food grains. Higher minimum support prices (MSP) enable the Centre to build up its buffer stock which is later sold at subsidised rates through the public distribution system.

These items have a 40% weightage in the consumer price index. One explanation for the rise in food prices is that the purchasing power has gone up in the hands of the rural poor, following NREGA (National Rural Employment Guarantee Act). An indicator of high purchasing power is the higher cash in circulation this year. It rose Rs 59,185 crore in April-August 2010 compared with the growth of Rs 19,537 crore in the year-ago period.

“Foodgrain-intensive states have seen a sharp rise in consumer prices largely because of the steep rise in the MSPs of wheat and rice in the recent past. While in case of other food products, like fruits, vegetable and oilseeds, these states have suffered on account of factors like higher transportation costs, in addition to the natural price rise of these items,” said Madan Sabnavis, chief economist of Care Ratings.

West Bengal, which tops the inflation list, is the country’s largest rice and vegetable producer. According to Sugata Marjit, director of Centre for Studies in Social Sciences, Kolkata, the state-wise differences in CPI are a reflection of poor inter-state mobility of food items.

Economists said the reason for this trend lies in rampant hoarding of foodgrains and the existence of several layers of middlemen for food item marketing. “There are several probable reasons behind the high rise in food prices. In West Bengal, the large stocks have typically been controlled by a small number of people and hoarding of foodgrains is probably the most widespread in the state.

The existence of several marketing layers pushed up prices further in the state,” said Prof Marjit, who is also a Reserve Bank of India professor. Farmers in Punjab and Haryana, he said, have incentives to pile up their stocks with the Food Corporation of India as the MSP for their products — wheat and paddy — rose more than anything else.


The Business Standard, 31 August, 2010, http://economictimes.indiatimes.com/news/economy/agriculture/Rising-prices-Top-foodgrain-producing-states-worst-hit/articleshow/6465347.cms


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