Wednesday, January 19, 2011


India, is facing the highest food inflation in six months. Economist now recommends that Government should build up strategic stockpiles of staples to cool prices, in medium term. What should be done in short term? Prime Minister Man Mohan Singh’s government, is under pressure to curb costs of vegetables such as onions, a key ingredient in local cuisine, must build reserves of cooking oils, lentils and expand cold-storage facilities. We have discussed earlier long term measures that could be taken Up to bring down food prices.. The views expressed in this article today is not as a student of Economics but as a member of suffering public who has been associated with market analysis for food commodities since last three decade at Guwahati, Kolkata and Delhi as a retail buyer. During medium and short term action taken only by RBI is not enough. Even the most powerful action taken by RBI would not work like magic unless it is supplemented by action of local government first and secondly by the Central Government. For regulating food prices in short term there are four components. These are increase of CRR and Repo rate by Central bank, action against hoarding of food grains by traders by local government and canalizing subsidized through corruption free route by Central Government and lastly by avoids buying artificially priced goods and commodities by people in general. More than RBI Government need to orgnaise upply side of food products through imports. If these four measures could be taken together immediately price would come under control immediately.
“China has acted wisely in creating strategic reserves of key food items and managing prices,” Should India follow that ? No, for in India stock piling would give rise to corruption and here corruption like inflation can not be controlled for supply chain is linked with top to bottom. Any way stock piling is a Medium term measures. What we need now is short term action so that prices cool down. This short term action can come from local Government through removing curtail on fish market. This may cost a few politicians kitty but would improve the election prospect of the party in power. Perhaps everybody remembers that Suharto lost his job due to uncontrolled food prices of commodities. The same fate awaits Government of Assam , too, in case food price is not controlled by March. Too much stress only on growth story may have adverse repercussion . The fruit of development must percolate to the bottom of the society. This is where power of governance comes in.
. India, the second-biggest grower of rice, wheat and sugar, may buy some supplies from overseas, boosting prices of commodities including palm and soybean oils. Inflation is a casualty of high vegetable prices and the government may need to import some essential commodities to cool costs The buffer stocks created should be rotated regularly or else we’ll be doing more harm to prices. Today, we have no hesitation to recommend starting of retail movement through local corporate with foreign participation like in case of Insurance management. India does not have expertise on retail distribution system. The system can be developed with foreign participation.
Prices in India may cool if the Forward Markets Commission, which regulates the commodity futures markets, orders bourses to “substantially” increase trading margin. .Singh’s government has reached out to Pakistan to import onions after prices almost doubled in the last month, and plans to sell 5 million tons of rice and wheat at subsidized prices as opposition parties prepare to launch protests against inflation.. Onion is not a staple food. It should not have created so much suffering. It is intentional. Hoarding and corruption and PDS must be strengthening. Public has also a duty to perform. If uses of onion is restricted by people in general none will die out hunger. Traders would be forced to sale at reasonable cost as it is a perishable commodity and cannot be hoarded long..The government may ban exports of wheat products, cut taxes on milk powder and ban futures in essential commodities to cool prices, “The government may be tempted to crack down on hoarders and impose stockholding limits” on everyday food items, according to some economists. Still, the government measures may not staunch inflation as weather disruptions to crops globally keep prices high.
“Given extreme weather patterns across the globe -- floods in Australia, snowstorms in the northern hemisphere -- price rises could persist in the coming months. “This poses upside risks to our inflation forecasts.”
World food prices reached an all-time high in December on higher sugar, grain and oilseed costs, the United Nations said, exceeding levels reached in 2008 that sparked deadly riots from Haiti to Egypt. Kaushik Basu said that India is a huge country in terms of population and land area. It is utter mistake to think that it is fully within the control of the government to move prices of food up and down. Despite our high regards for Mr. Basu we do not agree with these arguments. China is a bigger country than India with greater population .How China is controlling food prices? China is controlling through long term planning of stock piling and eradicating corruption and by managing public distribution system with greater vigilance. This is where Indian politician cum administrators failed.

Palm oil, which accounts for 80 percent of India’s annual cooking oil imports worth $8.4 billion, have surged 57 percent in the past six months in Malaysia, while soybean oil climbed 43 percent in 2010 for a second straight year, because of adverse weather in the producing nations.Did Government of India ever though to stock piling this product knowing well that onion could be avoided but for Indian kitchen cooking oil is a must.
Reserve Bank of India Governor Duvvuri Subbarao has raised interest rates six times in a year, the most by any central bank in Asia. China asked banks to set aside more reserves six times and raised interest rates twice in 2010. Monetary action alone won’t help cool food prices. “The world may have to live with higher food prices a little longer as there’s too much cheap money chasing too few goods,” he said. “The government will be forced to go hammer and tongs to keep prices under check.”
We however agree that the the government is just an enabling body. Basu said , there are little local bodies taking decisions, there are private players taking decisions, farmers taking decisions... Government can give signals, can intervene strategically to keep the situation as much under control as possible. Of course he is correct but as an enabling body it is the mundane duty of the government to coordinate all these channels.

He said movement of onion, whose price rise resulted in surge in inflation, should be facilitated to bring down rates. "I am not denying that there are occasions when slightly earlier moves could have been made, no two ways about that." ,Basu agreed

Basu, however, cautioned against using any blunt instrument like arbitrary fixing of prices to tame exceptionally high prices, as such a move results in shortage of commodities and retard growth. We are entirely in agreement with Basu. But let the first stop be taken locally to control unscrupulous traders and hoarder and cartel of fish market at least for Assam


No comments: