Monday, July 12, 2010


Poverty line is defined by the inability of a segment of population to buy what is needed for sustaining life and there is always controversy surrounding this issue. The invention of international economic pundits to compare the countries on a "purchasing power parity" (PPP) scale invariably boosts the per capita income of people in some of the developing countries and a country like India "shines" because the cost of living is much less here than that in many wealthy countries. It is an irony that India is being projected as an economic power while more than one third of its population is supposed to be below the proverbial poverty line. But poor is getting poorer is a hard fact of life as the benefits of development during the last 6 decades have not percolated down in the society, rich becoming richer in the process. Recent trends of the inflation dynamics show that the food inflation is creeping up continuously reducing the food purchasing power of poor people to unbearable levels. Whether such a trend will lead to uncontrollable social unrest is a worrying issue that is attracting world wide attention.

"When inflation occurs largely because of rising prices of food products (as it has in India of late), it becomes a double burden on the underprivileged since food accounts for more than half the expenditures of the poor. Over the last seven months, food inflation has ranged between 13% and 20%. Prices of pulses, dairy products, sugar, edible oils, fruits, vegetables and cereals have all gone up considerably. The government acknowledges that the bottom one-third of the country's 1bn-plus population lives below a contentiously-defined "poverty line". India is currently mulling the enactment of a new law conferring the right to food to all its citizens. Until the middle of 2008, inflation in India was driven largely by high prices of petroleum products.The country imports over three-quarters of its total requirements of crude oil though it has surplus capacity to refine petroleum products (some of which is, paradoxically, exported). Whereas kerosene and cooking gas are subsidised, the benefits often do not reach those the subsidies are meant for".

Recent abolition of fuel subsidy on Petrol and Diesel is bound to have a cascading effect on food prices which will further exacerbate the food inflation. This is especially true with regard to Diesel which is an essential commodity in the country used for road and rail transportation. Unlike in other countries Diesel is priced less in India historically to maintain transportation cost at low levels and it will be difficult to reverse this position without upsetting the national economy dramatically. As it has been rightly argued GOI as well as the state governments must reduce taxes on these fuels, especially the diesel, if the current inflationary trend is to be arrested. Same is true with LPG also as its use has become widespread, even popular in rural areas near distribution points. GOI's priority in enacting toothless "laws" such as"right to food" act can at best be only symbolic, if effective action is not taken to control inflation.


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