Friday, July 13, 2012

Food prices shooting through the roof

S Remadevi /Kochi

While inflation is reaching dizzying heights primarily on account of farm products, the farmer still gets what he used to get earlier for his produce. Middlemen mostly pocketing the increase in prices at retail levels.

Inflation, or the phenomenon of rising prices of goods and services, is one of the worst predicaments that policy makers have to grapple with. India, clearly, is no exception. With inflation hitting the roof, the Government is ostensibly at a loss of words, and more importantly, actions, to curb the spiraling price rise situation. Inflation has shot up on several occasions previously as well; but what's worrying everybody this time round is that the current rise in inflation is driven mainly by high food prices, besides items such as edible oils and steel. In a poor country like India, where half or more of family spending is on food, rising food prices spell the worst trouble for the marginal and poor people. Given the low purchasing power of India's poor, even a small increase in food prices translates into a sharp fall in real incomes, thereby hitting the poor the most. Economists broadly concur that inflation actually serves as a tax on the poor, since food accounts for a relatively high proportion of their expenses.
The government, on its part, has termed inflation as an international phenomenon to explain its obvious inability to stem the rise in prices quickly. True, global oil prices are ruling at nearly $115 a barrel and rising food costs are taking a toll on the global economy. But a bit of introspection would unravel the real major cause for India's inflation - an abject neglect of the agricultural sector and the tardy pace at which farm output has been growing in the recent years.
Even as the Indian economy has been expanding at an average of over 8% over the last five year, the growth has been mainly confined to manufacturing and services sectors. Agriculture, on the other hand, has grown by barely 2.5% over the last five years and the trend is even lower if the past decade and a half is considered. Consequently, per capita output of cereals (wheat and rice) at present is down to levels that prevailed in the 1970s. The problem acquires a serious dimension since farming provides livelihood to around 60% of India's 1.1 billion people, even though farm produce comprises only 18% of the country's current gross domestic product (GDP). The Food Corporation of India's stocks have plummeted over the last few years because of low production and exports. The problem has been compounded by the fact that whenever India has decided to go in for import of wheat in the recent months, global prices of wheat has shot up.
There is a serious resentment over the fact that the price of wheat that the government imports is often twice as high as the minimum price the government pay its own farmers for domestically grown wheat. The crisis in agriculture has been manifest in the growing incidence of farmers taking their own lives. At least 10,000 farmers have committed suicide each year over the last decade because of their inability of repay loans taken at usurious rates of interest from local moneylenders. Fragmentation of land holdings and a fall in public investments in rural areas, especially in irrigation facilities, are also to blame.
The biggest paradox, therefore, is that while inflation is reaching dizzying heights primarily on account of farm products, the farmer still gets what he used to get earlier for his produce, while middlemen mostly pocketing the increase in prices at retail levels. But the farmer is forced to shell out more for whatever he buys from the market, resulting in a double whammy of sorts.
So then, it all melts down to the question of why the Government has been sitting on the ticking inflation time-bomb, even as most experts saw it coming way in advance. Part of the reason, according to New Delhi-based Economic Research Foundation, for this delayed response is that headline inflation figures offered by point-to-point annual increases in the Wholesale Price Index (WPI) capture trends on the ground with a substantial lag. Matters took a serious turn when WPI-based inflation figures for the week ending 15 March 2008, released at the end of last month, showed that the annual rate of inflation had shot up to 6.68 per cent, which was higher than it had been for the previous 13 months. Also, inflation, which subsequently crossed 7 per cent, was not restricted to a few commodities but was widely spread across most commodity categories. According to the WPI data, inflation stood at 9.28 per cent in the case of dairy products, 19.03 per cent in the case of edible oils, 20.12 per cent in the case of oilseeds, over 9 per cent in the case of mineral oils and 26.86 per cent in the case of iron and steel.
Going by figures released by the government's own Department of Consumer Affairs, in the last one year, in the retail market of Delhi, the price of groundnut oil has risen from Rs. 98 to Rs. 121 a kg, mustard oil from Rs. 55 to Rs. 79, vanaspati from Rs. 56 to Rs. 79, rice from Rs.15 to Rs.18, wheat from Rs. 12 to Rs.13, atta from Rs. 13 to Rs.14, gram from Rs. 32 to Rs. 38 and tur from Rs. 35 to Rs. 42. In fact, figures collated by Price Monitoring Cell of the Department of Consumer Affairs establish that in the case of a few commodities there is huge difference between inflation as measured by retail prices (collected from and averaged across 18 reporting centres nationwide) and the wholesale price index. In the case of rice, inflation over the year ending March 15 stood at 7.88 per cent as measured by the WPI, whereas it worked out to a huge 20.86 per cent in terms of average retail prices. In the case of vanaspati too the inflation rate stood at 8 and 22 per cent respectively.
Amid the spectre of spiraling international food and commodity prices, countries such as Zimbabwe and Argentina are already on the brink, with reports of riots being quelled over rising food prices. India, the world's second most populous nation, is clearly in the vortex of a price rise situation, which could spiral out of control.
The Government, which is slated to face general elections next year, has said it is taking all possible steps to curb inflation, including increasing the procurement of food grains. But with a serious agrarian crisis at hand, it remains to be seen how effective the battle against inflation proves to be. And for it to yield any result in the long term, the Government will have to probably turn to the person most neglected in India's race to emerge an economic superpower - the humble farmer.

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