Accord priority to check price rise of food items
Public distribution system has an important role to play in stabilisation of food prices.
Food inflation — the general rise in price of food articles — is much debated as it continued to show increasing trend since November last year. Food inflation is not a new phenomenon in India and is caused by cyclical fluctuations in demand and supply conditions. Recently at the chief ministers’ conference on prices of essential commodities, Prime Minister Manmohan Singh opined that “the worst is over as far as food inflation is concerned” on the premise that food prices have started softening during recent weeks and it would stabilise soon. But, contrary to his expectations food inflation has risen to 17.97 per cent for the week ended Feb 6 over the same week ended in the previous year.
The alarming rise in food inflation, if it remains unchecked will shoot up the daily grocery bill of common people. There is a danger that spiralling food prices may percolate into other sectors of the economy. Thus, greater understanding of factors underlying food inflation is necessary for making strong interventions to protect common man suffering from rising cost of basic items like food.
Stimulus packages
Economic stimulus measures introduced since September 2008 seemed to have put back the Indian economy on higher growth trajectory. According to Central Statistical Organisation, Indian economy has registered an impressive growth rate of 7.9 per cent in the second quarter of the current financial year. Compared to the first quarter, private consumption expenditure registered a growth rate of 5.6 per cent.
Further, rebound of most advanced economies from the worst economic crisis has revived the IT and consumer goods sectors — creating new jobs during the last few months. This is also evident from buoyant sales growth of the Indian corporate sector. Overall, economic stimulus measures have helped to augment the consumption expenditure in the economy.
According to the Second Advance Estimates of Foodgrains Production released by the ministry of agriculture on Feb 12, foodgrain production fell short of target by about 22 million tonnes. However, only hope is the bountiful rabi crops, which were less affected by the fluctuations of rainfall across the country.
In recent years, several states have witnessed the emergence of organised retail and supermarkets selling fruits, vegetables and other food items. However, neighbourhood stores have also shown phenomenal growth. Foreign firms are restricted to enter retails markets. But many of them have set up joint venture with domestic players to enter the wholesale sector. Both wholesale and retail formats have built state of art infrastructure to procure and store the produce for considerably long time to meet off-season demand.
Public distribution system has an important role to play in stabilisation of food prices. However, the effectiveness of the PDS is a big issue. Except southern states, the system is plagued with several problems. Proper mechanism need to be put in place to check diversion of foodgrains to open markets and make it available to the beneficiaries. Further, there are reports that several private traders maintain undeclared stocks of foodgrains and sugar to take advantage in speculative activities.
Futures trading is often blamed for increase in prices of agricultural commodities. However, research studies indicate that there is no link between futures trading in agricultural commodities and inflation. There were instances during 2007 that spot prices of certain commodities were much higher when these commodities were not traded in futures market.
There is a strong need for policy support for resurgence of agricultural sector with large investment to augment agricultural production through new technological breakthrough. With obsession of policy makers about only overall GDP growth rate and those sectors contributing more to it, the significance of agricultural sector to sustain livelihoods of millions of people cannot be relegated. The government introduced some measures like distribution of diesel subsidy and sinking new tube wells in an attempt to tide over Kharif crises.
But, the government should go beyond these ad hoc measures and find permanent solutions for sustainable growth. There is a huge gap between irrigation potential created and actual utilisation. With limited scope to bring additional area under cultivation, potential of dryland farming should be exploited through appropriate interventions.
(The writer is associate professor at Institute for Social and Economic Change, Bangalore)
