Saturday, December 10, 2011


Who is not worried about the food inflation that is going up and down every week between 6% and 10% as per government "estimates"?. But the average "aam aadmi" has different experience when they go to buy their daily needs of food materials like pulses, oil, vegetables and fruits with the prices ruling at high levels persistently. During the recent discussion in the Parliament on this subject one could see clearly the GOI mindset in laying the blame for the domestic food inflation on the door steps of Europe and Global system! A small dip in inflation during the last week of November was highlighted as a trend of declining inflation, probably ignoring that only prices of Onion and Potato registered a decline in price due to fresh arrival in the market which brought down the GOI inflation figure slightly. RBI, country's Central Bank has correctly identified the reason for inflation by pin pointing that "drivers" of inflation to day are protein foods, fruits and vegetables and due to widening gap in the demand-supply situation vis-a-vis these foods, inflation is bound to persist if not to go up, unless corrective measures are taken immediately. Here is a take on this latest twist to the food inflation crisis in the country.   

"Reserve Bank of India deputy governor Subir Gokarn said that the drivers of food inflation has changed from the pair of sugar and cereals during the last four decades of the previous century to proteins and fruits and vegetables during last four years. He also asserted that the situation of persistent high food inflation warrants monetary policy responses to keep the overall inflation in check. Mr Gokarn was delivering the Kale Memorial lecture at the Gokhale Institute of Politics and Economics (GIPE) today on 'Food Inflation: This Time It's Different.'' "The more worrying attribute of food inflation is persistence. In the four decades in 1960's, the drivers of food inflation were cereals and sugar with a supporting role being played by proteins and fruits and vegetables in the second half of the period,"said Mr Gokarn, adding, "While contribution from proteins has gone down somewhat in 2011-12, which is the basis of the declines we have seen in food inflation in the most recent date releases, the pressure from fruits and vegetables have sustained." Mr Gokarn said on the demand side that people eat better as they get richer is a simple assertion. But on the supply side, we have problems. The productivity of pulses has oscillated around 600 kg/hectare for the last decade and a half. "There are several states, in which pulses may constitute an important part of the typical diet, whose productivity is significantly below the national average. If overall productivity is to be improved, a strategy which focuses on the specific bottlenecks in these states is probably the best way to go about it,"he said. Mr Gokarn pointed out the rising wages of agricultural labour and the stocks of agricultural commodities as two important factors exerting influence on their prices. "Wages rising faster than productivity can only result in rising prices, if producers cannot substitute other inputs for labour. There is important relationship between price dynamics and stocks. Periods in which stocks have been high, show relatively low rates of price increase," he said. Lastly, he pointed out the declining trend in the long period average (LPA) of monsoon rainfall. "This means that normal monsoons are delivering less water than in the past. He said that the implication of persistent supply pressures on the economy are not very good for maintaining balance between fast growth and low inflation. "While transitory episodes of food inflation do not warrant a monetary policy response, there are strong justifications for acting in the face of more persistent ones, if the objective is to keep overall inflation in check". 

It is not clear why GOI has suddenly pitched for FDI in the retail sector when food inflation is showing signs of getting out of control. Does GOI really believe that promise of investment in retail by the global retail chains will increase agricultural and horticultural productivity? GOI has to answer a lot as to why the pulse productivity in this country still stagnates at a shameful figure of 600 kg per hectare! By shirking its responsibility to bestir the agricultural sector through appropriate reforms and infrastructure augmentation, GOI has exposed its weakness in taking and implementing decisions for the good of the farmers and consumers in the country. Even now there does not appear to be any urgency to address these issues in a sincere and determined way and in stead more noise is being made with no substance to fool the aam aadmi through rhetoric and high decibel sound bytes!

No comments: