An intractable problem

    The unexpected spike in wholesale inflation to a five-month high of 6.01 per cent in May from 5.2 per cent in April, largely underpinned by high food prices, has forced an already concerned government to unleash a package of measures to curb food prices.

    It has slapped high minimum export prices on two important staples, onions and potatoes, to discourage their exports. It has advised State governments to exempt perishables such as fruits and vegetables from the purview of the state-administered APMC Act. This legislation gives near-monopoly status to traders and middlemen to procure, stock and trade food produce.

    The Food Corporation of India has been asked to offload 5 million tonnes of rice from its overflowing godowns. The Centre cannot probably go much further than these minimal steps as agriculture is largely in the domain of the States. Yet, given the persistent nature of the problem, a holistic approach involving the States is called for. Food inflation has averaged 11 per cent over the last seven years.

    Though cooling slightly in April, it rose to 9.5 per cent in May and might go up further if the South West monsoon turns out to be below par. Consumers base their expectations of future prices on the present levels of retail inflation, which again is largely determined by food prices.

    Curbing skyrocketing food prices is imperative, not just because it means sound economics but also as a political necessity. Recent elections both at the level of the States and the Centre were fought primarily over an economic agenda in which inflation topped the list. The NDA government has to meet the very high expectations of people who have been ravaged by high food prices.

    High inflation has directly translated into reduced purchasing power, especially for the poor. This partly explains why despite a bumper harvest last year rural consumption remained weak. Going beyond the shortterm steps announced, the time has come to devise a long-term strategy to tackle food prices. The urgent need is to reduce the numerous intermediaries between farmers and consumers.

    It should be possible for farmers to fetch a higher price without pushing up the price paid by consumers. Though talked about for a long time, this has been difficult to implement because of political opposition from lobbies representing middlemen and traders.

    To minimise wastage of farm produce, especially of perishables such as vegetables and milk, it is necessary to put in place a robust system of logistics including cold chain facilities. Reforming the outmoded food management system is a subject that has gained traction recently. The phenomenon of overflowing granaries co-existing with high cereal inflation is totally unacceptable, but continues for want of the political will to reform the system.


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