Food inflation looms large

Govt scrambles to import commodities

This led finance minister Pranab Mukherjee to suggest on Thursday that the Centre would import essential commodities to improve supplies.
Outside the government, a parliamentary committee has pulled up the finance ministry for its failure to intervene “timely and squarely” to address price rise “with due seriousness”.

In its report tabled in the Lok Sabha, the committee recommended that a comprehensive food pricing management policy be formulated not only to provide the much needed relief to consumers but also an antidote for the growing economic imbalance in the country. 

In its analysis of the causes behind the price rise, the committee noted “wide variation between wholesale and retail prices in commodities like rice, pulses, potato and onion suggests artificial shortage and spiking of prices by intermediaries”.
Aware of the grim scenario, with political and economic implications, Mukherjee did not disagree with the committee, saying: “Food prices are going up. It is a matter of concern. We have to take appropriate measures to see what best could be done by further enhancing the supply through import.”

Spurred by the soaring prices of essential food items like pulses, potato and other vegetables, the annual rate of increase in the prices of food items soared to 19.95 per cent — the highest in more than a decade.

Food inflation stood at 19.05 per cent at the end of November. This steep rise is likely to put pressure on the over all inflation, raising apprehensions that the Reserve Bank of India will adopt a tight monetary policy which will push up the interest rate on all sorts of borrowings on automobiles and housing loans as also commercial lending.
The overall comprehensive inflation based on the Wholesale Price Index (WPI), which includes manufactured products in addition to food and fuel products, rose to 4.78 per cent in November from 1.34 per cent in October. There is now growing apprehension that the soaring food inflation will push up the overall inflation rate much above five per cent — the extreme comfort level prescribed by the RBI on the price rise front — by the end of this fiscal. 

Curbing inflation
Economists feel that in the face of soaring food prices the immediate objective of the RBI will be to curb inflationary expectations by adopting tight monetary policy.
Former RBI Governor C Rangarajan, now Chairman of the Prime Minister’s Economic Advisory Council, has projected that by end of the current fiscal (March 31, 2010) the annual rate of inflation could touch 7 per cent.
RBI Governor D Subarao recently said: “If food price inflation persists for long, they can fuel inflationary expectations and the monetary policy will have to take a view on this.”