Edit & Opinion

Rising Food Prices: Ease financial milieu

By Shivaji Sarkar

Rising food prices are adding to the woes of post-corona lockdown recovery. States such as West Bengal, Assam or Uttar Pradesh are in quandary whether to allow full opening or continue with half-shut half-open measures. This is adding to supply problems creating artificial shortage in most parts of the country.

It is a double whammy. Recession has hit not only India but the entire world. Job losses, reduction in income, fall in production are common. But in countries like India rising cost of transportation, due to unprecedented hike in administered petroleum prices, is telling on the people.

With reduced purchasing power, inflation has added not only to the problems of consumers but also of farmers. Despite higher minimum support prices, the farmer has not been able to get even the minimum for either wheat, corn, potato or any other produce. He is forced to sell at any available price.

Additionally, since dhabas (roadside eateries), hotels and processing plants remain under lockdown the demand for most vegetables or food grains is low. It has a direct bearing on most farm produces. For example, corn fetched Rs 2200 per quintal in 2019 but this year it is difficult to get even one-fourth of the price. So a farmer who earned Rs 20 plus lakh last year, despite better production is content with just Rs 5 lakh.

Similarly, potato and other vegetables see a slump. So the price for the consumer is high. The farmer, however, has an earning, which would not be more than what he earned last year. The expected growth on the rural strength of the economy, that may have been a reality till February, is not to be seen now.

The farm sector is in trouble as input costs have increased manifold during the past few months. Even irrigating the fields cost more than double as the administered price of diesel is creating new records. People are not beneficiaries of the crash in crude prices to around $40 a barrel. Taxes and higher prices have acted heavily.

The official view that petroleum products are used only for transportation and higher fares or freight can make up for the losses is a fallacy. Any society that pays higher fuel cost suffers more than one way. It erodes income, reduces purchasing capacity and causes overall slowdown at a time when pace in production is a must.

So rising food prices in reality is pre-corona phenomenon. Even in December 2019 these were rising. The consumer price index (CPI) rose 14.2 per cent on an annual basis. This was the highest increase since December 2013. The food price index of the UN Food and Agricultural Organisation (FAO) rose 12.2 per cent in December, the highest since 2017.

The latest 20 to 40 per cent rise in prices of vegetables – potato, tomato, lady finger, bottle gourds, brinjals and others is attributed to higher labour costs and 15 to 20 per cent more transportation costs. Supplies have reduced by about 15 per cent due to summer rains damaging the vegetable crop. The shortage of labour following reverse migration has increased wages of the labourers required.

These all reflect in vegetables and other food grain prices. Even prices of rice and wheat have increased in the market despite a massive dole being given to the poor by the government. It is said that in about 11 States free food grain distribution has not been implemented as planned.

According to the Ministry of Consumer Affairs data, 36 States and Union Territories lifted 6.38 lath metric tonnes (mt) of 8 lakh mt allocated under Atmanirbhar Bharat for May and June for migrant workers. Till June 30, 1.07 lakh mt, about 13 per cent food grain was distributed. Andhra Pradesh, Goa, Gujarat, Jharkhand, Ladakh, Maharashtra, Meghalaya, Odisha, Sikkim, Tamil Nadu, Telangana and Tripura distributed not more than one per cent of the food lifted!

The crisis has been building up on the price front since the 2019 General elections. The Food Corporation of India (FCI) procured 36 million tonnes prior to that in 2018, the highest since 2012-13, prior to the 2014 Lok Sabha polls. It swelled FCI stocks to 75 million tonnes – 33 million tonnes of wheat and 42 million tonnes of rice, and is estimated to be about one-third of the total production.

This has been utilised well for distribution till coming November at a cost of Rs 1.5 lakh crore. But the mismatch in distribution, the market supplies and other factors have continued to add to the rise in prices. Interestingly enough despite free supplies, the prices have not come down in rural markets either. This is intriguing and is attributed to reverse migration causing large influx in rural areas.

The prices of edible oils too have noticed significant rise all over. The village markets have seen spike in locally produced oils. This has happened due to rise in mustard and other oilseeds prices, labour costs, electricity and diesel prices. Overall expelling and freight costs have increased.

In June, the RBI noticed that the inflationary situation has returned since April, when the price index surged by 8.6 per cent from 5.8 per cent in March owing to price spurt of vegetable, cereals, milk, pulses, edible and sugar. Its monetary policy committee (MPC) says, “The macro-economic impact of the pandemic is turning out to be more severe than initially anticipated because of supply disruptions and demand compression. Beyond the destruction of economic and financial activity, livelihood and health are severely affected”

The MPC says it is necessary to ease financial conditions further. It has reduced interest rates, which have hurt the depositors, senior citizens and the poor the most. In fact, cut in interest rate has not helped anybody. Rather, it has caused hardships and further reduced purchasing power of the most vulnerable classes. The high income-tax, bank charges, rude bank staff behaviour and tax on deposits are further hurting the economy.

There is no magic wand, but a soft policy approach and reduction in income-tax rates, which may momentarily accrue less to the official kitty, would be more beneficial in the long run with the health of the economy back. With a benevolent tax regime, prices too can mellow. It would reduce governance costs and add to the well being of the country.

 

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