The highest ever food inflation at 7.4 per cent in 15 months in July and the Reserve Bank of India hinting at far more increase in prices, the government is mulling wheat imports from Russia to stem food shortage despite the highest ever production of 330.53 tonnes.
Price curbs are not easy. So, after over 53 years, the government is considering wheat imports to boost supplies and curb food inflation ahead of the series of State elections this year and the Lok Sabha polls next year. The exercise may cause foreign exchange drain. The balance of payment position is largely not in favour because of the import surges. An eightfold pay rise is needed to be called developed at constant 7.6 per cent growth till 2047. A tall order indeed.
Import is also needed to serve the free food grain programme to 81 crore people. This has affected the stocks that need fast replenishment. Any fall in supplies is feared to raise the prices beyond the normal level. Wheat production is estimated at 112 million tonnes, according to the third advance estimates. It is higher than last year’s figure of 107.4 million tonnes and even the 2020-21 production of 109.58 million tonnes.
In 2017, private firms had imported 5.9 million tonnes of wheat. However, in diplomatic terms no import was made since 1970, when the PL480 imports were stopped with the Green Revolution changing the food grain scenario.
The government is exploring the possibility of imports through private trade and government-to-government deals. It is serious about checking prices of key commodities such as fuel, cereals, and pulses and wants to improve supplies in the rural areas to ease the impact on the poor. Remember, they are a major vote bank. Even small price disturbance can have wider political repercussions, which the Centre wants to stay clear of now.
India reaching the global market also has its problems as this impacts the prices.Despite this, the imports partly both through the government channels and private might touch about eight to nine million tonnes of wheat. The officialshortage is expected to be around 3 to 4 million tonnes.
In its August bulletin, the RBI has cautioned on the price front. It has found July inflation abnormally high at 7.44 per cent in terms of consumer price index (CPI). The RBI has raised its second quarter, July-September, inflation forecast to 6.2 per cent against 5.4 per cent earlier.
It states that incidence of supply shock is not over as it was evidenced with the sudden spurt in tomato prices and slow surge in onion prices. The National Cooperative Consumers’ Federation of India imported 50000 tonnes of tomato from Nepal that crashed prices to around Rs 60 a kg from Rs 200.
The RBI says that the vulnerability of the economy to recurring incidence of vegetable price shocks warrants major reforms in perishable supply chains covering transportation networks, warehousing and storage technologies and value addition processes that dampen the amplitude of these swings.
Price stability is being considered key to the race to become the third global economy in GDP terms.Prime Minister Narendra Modi has a dream for India– to be among the most developed economies in the world. That’s also a dream that Indians have been cherishing since long. Can it happen in a hurry? The government thinks it can with the unleashing of spending spree ahead of elections and high debt. Normally, a debt should not be an issue if it is supported with high income, low inflation and measured actions for improvement of the living conditions, just not vague development. Spending and debt, however, spurt prices.
The benchmarks are high and hindered by underassessed inflationary trend to retain bank rate. A policy contrary to the US policy of firming up anti-inflation measures. The US is benefiting with Federal Bank approach of increasing interest rates continuously. It has made investments flow faster to the US, a stronger dollar, despite not so bright an economic performance. The Federal Bank rate hikes actually isagainst the developing countries as it robs them of fund flow.The Indian rupee is losing continuously in this melee. It has slipped to Rs 83.15 to a dollar. As there would be more such US moves in the next few weeks, it could slide further.
Still a State Bank of India research note claims that India could get to the third global spot in GDP terms as early as 2027, provided the economy grows at 8.7 per cent for four years till then. Even with a bit of slip, touching the third is almost a certainty. That,however, does not guarantee the overall living condition would match that of Japan (GDP $4.4 trillion) and Germany ($4.2 trillion), which India is aiming to surpass.
Interestingly, higher the inflation, in GDP terms the economy could look “brighter”. Cost rise reflects in GDP in quantitative terms. Qualitatively, it has also to match the total number of the population of about 140 crore or 1.4 billion against 12.5 crore of Japan and 8.32 crore of Germany. In per capita income terms India remains far behind.
By virtue of population, India could qualify to be a “large economy” but in actual terms it would remain a poor country. It ranks 139th in the world and the poorest among the G20 nations with a per capita income of $2601. So, without check on prices, increase in production and jobs, the country may attain a “high” rank, but in the real sense it has to work harder to come out of the developing syndrome.
The per capita income must rise by eightfold to $21,664, as per International Monetary Fund’s classification. According to July 2023 RBI bulletin, economy has to grow at 7.6 per cent for 25 years till 2047 to attain a moderately high-income level. So far, the economy has clocked growth higher than 7.6 per cent just seven times since the 1991 liberalisation.
This calls for larger sharing of the fruits of growth and not just linear increases. People must have larger income raise so that they can spend more. As per World Bank research, this requires an end to inequalities in both education and health. The New Education Policy needs a thorough review and reforms else a generation could forfeit the opportunity to move up the income ladder.An affordable price regime is a must to ensure that India can leapfrog.—INFA