Saturday, March 6, 2010

Insight into the food Inflation

The malicious and mindless blame game is on! Who ever in the government can be held responsible by the opposition is being brutally attacked (certainly the style is verbose). The crisis isn’t a common one, it has broke backs of the most vulnerable of the aam admis of our country … it is the ever bourgeoning food inflation.
The cliché with such a kind of crisis is that, people belonging to different spheres such as politicians, economists have their own respective interpretations and not necessarily does it leads to any kind of solution.
Many culprits have been named till now… while Manmohan Singh holds global increase in the commodity, prices responsible for the domestic surge in the prices while BJP accuses Sharad Pawar as being the sole malefactor.
Closely examining the food inflation, the picture doesn’t seems a simplistic one… bad recessionary times intersecting with the neglect of the agricultural sector at the home has led to the unprecedented rise in the price of the basic food items across the length and breadth of the country.
With an average growth rate of about 2% per annum, the agricultural sector has been gasping for real time reforms. Major issues continue to hog the sector persistently. Low per hectare yield, poor irrigational facilities, dependence on the erratic monsoon, lack of credit facilities are some of the issues that farmers have been facing since decades! It wasn’t a surprise that the monsoon was the spoiler this year…. lack of rain, power crisis and heat waves damaged the sown seeds but also delayed the cultivation cycle, resulting in huge loss of the output. This was the point when the food prices started rising. The rise was not on account of any shortage but more on account of probable shortage
Secondly the poor shortage facilities resulted in loses of 58,000 crores worth of agricultural food items due to lack of post harvesting infrastructure. If the Government had ensured timely storage facility, food inventory would have been more then sufficient leading to prices remaining under control. Next factor that led to the spurt was the government going soft on the hoarders and speculators.
On the global arena economic recovery from recession in major advanced economies and improved growth prospects in major agricultural products have been major drivers of the recent increases in international commodity prices. The FAO (Food Price Index), a measure of the monthly changes in the international prices of a food basket composed of cereals, oilseeds, diary, meat and sugar has been increasing significantly since August 2009, led by all its components. The major driver of this increase has been sugar, as output of the two major sugar producing countries, i.e. India and Brazil has declined. Consequently sugar prices have shot up in India too.
All the above mentioned cases are the supply side constraints that have led to sky rocketing prices of the staple food items of an Indian family such as pulses, rice, sugar etc. Government has reacted by permitting import of raw and white sugar, edible oil and pulses by public and private sector as well. Centre has taken steps in empowering states to punish hoarders. The area that can be consolidated further is the public distribution system
Pranab Mukherjee, Union Finance Minister said “RBI (Reserve Bank of India) has already done the demand-side management by raising the CRR (cash reserve ratio). It will suck out Rs.40,000 crores money from the banking system. This will ease liquidity pressure on the system,” 
Added to the proactive measures by the Government institutions, one can also count on nature as Rabi crops prospects seem encouraging; the post monsoon rains have been good. Along with the short term initiatives, there has to be long term vision in dealing with a crisis of such grave nature. Inflation as an economic phenomenon is cyclical in nature, but how much of it can be allowed a free play is a crucial question. Had the agricultural sector been better off to absorb shock, the intensity of the food inflation would have been moderate.
The bottom line is that agriculture has to be revived, revamped and reformed through a visionary plan in our country! The double digit growth that the PM claims in the next few years cannot be at achieved by riding on the success story of the manufacturing and the service sector. The growth has to be holistic including all sectors of the economy.
To conclude I would like to quote George Washington who had once remarked, "I know of no pursuit in which more real and important services can be rendered to any country than by improving its agriculture"

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