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.

About Rs 1 lakh crore budget for rural India

Sangita Jha/ New Delhi

There has been a 10 per cent overall jump in allocation of Ministry of Rural development, which was allocated Rs 90,000 crore in the 2011-12 fiscal.

Next only to Defence as far as Budgetary allocation is concerned, Union Rural Development ministry is now very close to Rs 1 lakh core mark. With Rs 99,000 crore allocation for the financial year 2012-13, Finance Minister Pranab Mukherjee's Budget has clear rural undertone. The ministry known mostly for the Mahatma Gandhi National RuralEmployment Guarantee Act (MGNREGA) is now looking forward to focus on other areas to become a key player in contributing to the growth of the economy.
Union rural development minister Jairam Ramesh did not miss to emphasise that the Budget is a trend setter for the rural India. Though the annual allocation for the next fiscal is Rs 99,000 crore, the Ministry of Rural Development could well surpass the Rs 1 lkah crore mark in the next fiscal only, as move is afoot to bring the Pradhan Mantri Adarsh Gram Yojna under its ambit shortly.
There has been a 10 per cent overall jump in allocation of Ministry of Rural development, which was allocated Rs 90,000 crore in the 2011-12 fiscal. There is a possibility, that the ministry could get another Rs 1,000 crore in November when the revised Budget is made under the head of the rural drinking water plan. With cases of arsenic contamination on the rise particularly in the rural areas where ground water is mostly the source of drinking water, the ministry is keen to change the gear and give a push to provide surface piped drinking water to the rural hamlets.
Though the ministry was allocated Rs 11,000 crore for rural drinking in the ongoing fiscal, the actual expenditure has been Rs 10,000 crore, while the allocation for next fiscal is Rs 14,000 crore. This translates into 40 per cent jump and also stresses the urgency, that the Centre is attaching to clean drinking water.
Finance minister has also allocated Rs 50 crore for setting up of a water testing centre in Kolkata. West Bengal, Odhisa and Jharkhand have seen an alarming rise in cases of arsenic contamination in the recent years. The world class centre in Kolkata, which will come up in the Rajarhat area of the metropolis over three acres of land having been allocated by the state government is expected to mitigate the cases of contamination of ground water and ensure that people get safe water to drink.
Further, allocation for the Pradhan Mantri Gram Sadak Yojna (PMGSY) has also got a boost with an increase of Rs 4,000 crore, as total allocation will substantially go up from Rs 20,000 crore to Rs 24000 crore in 2012-13. The PMGSY is the most sought after flagship scheme of the Centre, with state governments lobbying hard to get enhanced allocation to them for rural connectivity. Minister of Rural Development Ramesh has said that his ministry would focus on states like Bihar, Jharkhand, Chhattisgarh, Madhya Pradesh, Orissa, Assam, West Bengal, which have so far lagged behind under the programme. The norms have been amended by the Ministry for PMGSY in the tribal areas to ensure that even villages with population of 500 and more could get roads built under theflagship scheme.
The Centre had unveiled National Rural Livelihoods Mission (NRLM) last year by giving it the name of Aajivika to give a major push for the people in the rural areas to become not only self-dependent but also engines of economic growth. Mukherjee has proposed in the Budget, that Women's Self Help Groups (SHGs) would get loans at seven per cent, while those who repay on time will have to pay only four per cent. This is significant that India's SHG success story has revolved around those headed by women, who enjoy enviable track record of repaying their loans on time.
The Centre is also looking forward to unveil the urban version of the NRLM in the form of National Urban Livelihoods Mission (NULM) to replicate the success story of the SHGs in the urban areas too.
However, the Finance Minister has cut the allocation for MGNREGA by Rs 7,000 crore, as Rs 33,000 crore has been proposed for the next fiscal. The allocation was Rs 40,000 crore in 2011-12. However, the MGNREGA being a demand driven flagship scheme is to be supported by the grants if there were the need for more funds. Ramesh explained that Budgetary allocation for MGNREGA is only "notional" and added that if the job demand is of more than Rs 33,000 crore the additional funds would be made available. The cut in the allocation appears to have been due to the fact, that the actual expenditure has been much less than the projected labour budgets submitted by the state governments. In fact there has been growing realization that the state governments have been inflating the labour budget for the MGNREGA by seeking funds as if it was their entitlement.Giving examples of West Bengal government, Ramesh said while the state government had projected a labour budget of Rs 3,900 crore the actual expenditure has been only Rs 2,000 crore. Similarly, in the case of Jharkhand the state government had projected a labour budget of Rs 1800 crore but the actual expenditure has been only Rs 1100 crore.
There appears to be a case that the state government's or Gram Panchayat's capacity to spend does not match the labour budget projected by them. However, the Centre can still pitch in with more funds in November when the revised expenditure budget is prepared. However, there appears that the good Monsoon in the recent years has diluted the demands for works under MGNREGA.
However, there appears no dearth of funds, as an amount of Rs 42000 crore for MGNREGA would still be available, which includes an opening balance of Rs 6,000 crore lying with the states and their contribution of Rs 3,000 crore for the programme.
In another significant decision, the Finance Minister has increased the widow pension amount from Rs 200 to Rs 300 and disability pension scheme again from Rs 200 to Rs 300 per month. However, the ministry wants, that the widow pension scheme should also cover those who are 20 years of age unlike the current norms of 40 years of age. There ia also a demand that those with 40 per cent disability be considered entitled for disability pension in place of the current 80 per cent norms.
While the Economic Survey, which was tabled in the Parliament just on the eve of the annual Budget, had raised a question on MGNREGA draining the labour force away from the farms during the peak season, the Ministry of Rural Development is hopeful of the fact with the implementation of the Planning Commission member Mihir Shah headed committee on reforms of the flagship scheme the issue would be addressed. The report, which would be implemented from April 1 this year, has recommended 28 out of 30 new categories of works related to the agricultural sector to be included in the approved lists of works which could be taken up under MGNREGA.

Pitfalls in catching-up drive

Kumari Chitra/ Patana

Bihar should first ensure sustainable development and other facilities

before it aims for big-ticket global investments

Dhamdaha JD(U) MLA and former Bihar State Woman Commission chairperson Lessi Singh went a little overboard in praise of Chief Minister Nitish Kumar as she said the Centre should confer Bharat Ratna on Bihar CM for the state turnaround.

Call it sycophancy of the worst order or just plain and innocuous praise for a leader privately nursing ambition of becoming prime minister, it is all coming from much-hyped Bihar turnaround and growth rate story – touching 14.8 per cent in 2010-11. But the likes of Lessi Singh perhaps do not read between lines of speech of experts like economist Lord Meghnad Desai, Aditya Birla Group chairman Kumar Mangalam Birla and even Planning Commission member Abhijit Sen. She perhaps does not know the difference between inspiring growth and inspired growth.

The message from Global Bihar Summit 2012 was loud and clear: First get sustainable development, electricity and good roads before asking big investors to come to Bihar.

Lessi Singh should also know, just for her reference before she demands Bharat Ratna for Nitish again, of the state government receiving over 50,000 investment proposals since 2006. State Investment Promotion Board cleared 603 proposals worth over Rs 2,48,000 crores. So far so good. But here is the reality: So far, only 55 units, mostly medium and small scale, have come bringing investment of just Rs 3,712 crore, this despite all the camera-mounted image and front-paged publicity for Nitish Kumar in last six years. It is time Nitish started comparing himself with himself but he would still bring Lalu Raj in picture to get better comparison and dupe gullible and not-so-daring media.

Two jokes have been doing the rounds in Bihar media circles and even on social networking sites. First one is – “We had resurgent Bihar (topic of 2007 global summit) to Changing Bihar (topic of just-concluded 2012 summit). But when will have a summit on Changed Bihar? The second one can be crude --- Nitish wants to imbibe entire Gujarat growth minus the man instrumental behind it.

But then, Nitish is neither good at telling jokes nor does he like crude ones. He may go down in history as best Bihar CM but also as one with not such large heart for criticism. In plain words, he wants to know and read what he already knows and better, what his babus meticulously drafted. This is where media misses the point and tells half-truths, conventionally always dangerous.

Nitish Kumar, who succeeds in using large section of media as extension of his PR department (Rs 130 crore advertisement to newspapers in one year), seldom likes hard-talk. Ask Planning omission member Abhijit Sen, who had to face barrage of nuanced and even direct attacks by Nitish Kumar, who had successfully put Bihar being case of historic and historical neglect – right from British to Dr Manmohan Singh rule.

Nitish asked Abhijit Sen if it was also not an economist’s duty to suggest ways out of problem and not just criticize growth pattern. CM had perhaps taken great offence to Sen terming Bihar growth rate as “a catch-up and nursery growth”, which cannot be sustained for a long time. Sen’s contention, like any well-meaning economist, was need for having thrust on primary sector growth and not harping too much about second and tertiary sectors growth. Nitish did have last word during the summit after having asked plan panel to open its offers and re-consider the state’s demand of special category status. But political rhetoric aside, here are some facts and figures which may put Bihar growth story into right perspective. Anyone seeking immediate readymade reference to Bihar truth may well open page number 24 of Economic Survey 2011-12, tabled on Tuesday in Bihar Legislative Assembly.

As one opens the page telling one about “Yearly growth rates of GSDP in Bihar at constant (2004-05) prices”, the first thing catching attention is mercurial annual growth of agriculture/ animal husbandry since 2005-06. The key primary sector recorded -9.1 per cent growth in 2005-06 and then phenomenally climbed to 30.2 per cent in 2006-07. It again dropped to -7.3 per cent in subsequent year but took it to 12.3 per cent in 2008-09. In Year 2009-10, it was again hit negative at -9.1 and recorded 7.7 per cent in 2010-11. The gross of primary sector (agriculture/ animal husbandry/ forestry/ logging, fishing/ mining/ quarrying) also makes an interesting average. It averaged -7.5 per cent in 2005-06, 24.3 in 2006-07, -6.2 in 2007-08, 11 in 2008-09, -8.2 in 2009-10 and 6.3 per cent in 2010-11. So how does one get 11.33 per cent annual growth and 14.8 per cent in 2010-11 with this kind of performance in mainstay of your economy? Bigger question: For how long can you get it?

A look at secondary and tertiary sectors growth tells the complete truth about growth jump. Construction recorded 26.1 per cent growth in 2010-11. Thanks to law and order improvement and people restoring faith in Bihar to invest, construction sector went up since 2005-o6 with 24.1 per cent growth, kept up the momentum in 2006-07 with 25 per cent. Even in 2009-10 when agriculture recorded negative growth, construction still had 16.8 per cent growth. Year 2010-11, it touched 26.1. But this sector growth is mostly Patna-centric. Last six years has seen construction of over 10,000 apartments. The construction has reached almost saturation point with no residential plots being available in livable area. The secondary sector averaged 19.2 per cent as compared to primary sector’s 6.3 per cent in 2010-11. Tele-communication revolution caught Bihar’s imagination. Bihar, which had over 44 lakh telephone connections in 2005 has grown 10-fold by 2011 with 4.4 Cr connections. The growth rate suggests as much – 24.4 per cent in 2005-06, 17.9 in 2006-07. Year 2009-10 was watershed in communication boom with 68.7 per cent growth. But the point experts have been driving at home about such growth being unsustainable can be seen with growth rate coming down to 39.3 per cent in 2010-11. The positive sign amidst skepticism is however banking/ insurance sector picking up in last two years (28.2 per cent in 2009-10 and 25.2 per cent in 2010-11). Finally, the year-wise break of growth rate can also be a curious reading for economists. It started with 0.9 per cent of GSDP in 2005-06 to 17.7 per cent in 2006-07, 7.6 per cent in 2007-08 and 14.6 in 2008-09. But it went downhill to 10.4 per cent in 2009-10 and recorded 14.8 in 2010-11.

Against backdrop of such statistics, an economist like Abhijit Sen had valid reasons to give his prescription to Bihar’s economy. He did it threadbare asking what the state government would do after saturation in construction and communication sector in a couple of years. Even Kumar Mangalam Birla suggested that it was a nice idea to first get investment in power sectors.

Economist Lord Meghnad Desai gave a stern warning against power subsidy. “Power subsidy is a free lunch and destruction of resources. A state government has to discontinue it to make economy sound and robust,” said Desai.

Just because Bihar government had improved roads and law and order cannot bring big investments. The Economic Survey 2011-12 seems to make a defensive beginning while dealing with investment: “The investment climate of a state is determined by a mix of factors, resources availability, regulatory framework, physical infrastructure and incentives to industries.”

The investment pattern in Bihar, says Economic Survey, shows only 11 per cent investment has come in service sector. The share of food and beverages is also substantial. The government claims to have sanctioned 161 investment proposals in 2010-11 and 142 in 2011-12. But only 55 small and medium scale enterprises have started operation. Power, as outlined by experts, is the biggest hurdle before investment. The state that needs 2500 MW power in summer season has central allocation of only Rs 1700 Cr. Of it, the state only gets 800-900 MW. The state can hope to get 700 MW on its own in coming four-five years after a Barh NTPC units starts and Aurangabad’s Navinagar power plant starts functioning.

Nitish privately knows that prospective investors know the growth rate story. “We are willing to purchase power for investing companies and have started incentives for farmers to part with their land”, said Nitish.

It was the same Nitish Kumar, who used to say a year ago that land acquisition had been the real problem. Protest in land acquisition for Navinagar power plant resulting in a death was a case in point. Bihar Industrial Area Development Authority (BIADA), has little over 200 acre land left in vicinity of Patna. BIADA’s liberal policy got land to investors like Prakash Jha for a Cineplex at throw-away rate in midst of Patna. The government defends it by calling it in full consonance with its industrial policy. BIADA also converted education and entertainment into industry.

The agency has still over 2,000 acre land left at different industrial areas. But power situation being even more dismal in districts can be yet another de-motivating factor for prospective investors. The Opposition, though almost decimated and demoralized, still has some valid points. RJD president Lalu Prasad Yadav said: “Global summit does not bring investments. Even, I attended one such meet wearing sola hat”. RJD leader of Opposition Abdul Bari Siddiqui followed his boss up with calling it “just impression building development”. Siddiqui went further: “You media people have not been showing Nitish Kumar the mirror but treating him like US President”.

This said, Nitish government still has created sound defence in form of Asian Development Research Institute member secretary Shaibal Gupta, “fact gathering” Deputy CM Sushil Kumar Modi and one-in-all man, economist, bureaucrat and JD-U Rajya Sabha MP NK Singh. Singh, former Planning Commission member who moderated key session of Global summit having Planning Commission deputy chairman Montek Singh Ahluwalia, stressed on need of Bihar getting Rs 2500 per capita by way of central transfers as against about Rs 3,500 at present. Singh has examples of Canada and Germany to show how all states should be treated equally.

Nitish Kumar himself has gone a step ahead by laying out an agriculture roadmap of Rs 1.5 lakh Cr for 1 years. He asked plan panel: “Will the rainbow revolution come through with your Rs 400 Cr agriculture help?”

Fence sitters have a sense of fatigue with growth story and national and even international media going gung-ho over Nitish factor. Patna University economist NK Choudhary said: “Can we have sustained agriculture growth? Unless we achieve this, rest is cock and bull story”. Editor of bihartimes.com, an online news-portal, Ajay Kumar said nobody in the government had been willing to digest hard facts.

“Nitish Kumar is unchallenged now. But he feels the heat on investment count. Even he knows the truth of catch-up growth. But as long as selective magical figures are played to his benefit, he will love every bit of it”.