The entire country is reeling under terrible spell of inflation. Prices of essential commodities and food items have reached historically high levels. The Government has done too little to control prices. A blog post.
The entire country is reeling under terrible spell of inflation. Prices of essential commodities and food items have reached historically high levels. The Government has done too little to control prices. Its faith on market forces seems to be undeterred, even if evidences suggest that entire fiasco is an outcome of speculations and hoardings in a situation of bad crops; even it is commonsensical to go for major public intervention. The Mukherjees and Pawars at the power quarter are day dreaming about a good Monsoon, which may elude us this time also. Several news reports have brought to our notice few disturbing developments around food economy in the country. The present piece is a brief attempt to scratch the surface of four of these news reports and expose faulty policies of the UPA government on food sector.
Importing Poison: On March 25, 2010, the Times of India carried a report that a consignment carrying 1250 tonnes of wheat imported from
Though the officials claim that this is for the first time that a consignment with such high level of toxic pesticide has been found, this seems to be highly unlikely.
Given the porous food safety regulation system in
But why does
Time and again the government has insisted that import of wheat is done to makeup the shortfall in production due to drought. It has blamed drought even for the burgeoning inflation that we face today. But these claims are not supported by facts. The facts are the following: in 2009 Monsoon deficit was 23 percent; this has resulted in 7.5 percent decline in all food grains; but only 0.5percent decline in wheat output; while annual inflation based on WPI was 18.2percent, the same for wheat was 12.8 percent. There is no denial that the drought has considerable impact on the production of food grains. In fact, according to Sambrani (Feb 22, 2010, EPW) the impact would be more severe than what the government is trying to portray. The point however is whether lower production is the only reason for this inflation or there are other factors. There is something grossly wrong happening in the food economy and especially concerning wheat.
Source: PIB release
In the last few years government has allowed private procurement of wheat, while announcement of MSP was rather late. These resulted in massive private procurement and reduction in government stocks. For three consecutive years government procurements have fallen short of its target. As figure1 suggests, as a result there was continuous decline in procurement, however there is some recovery during 2008-09. It is to be noted here that for several years the Minimum Support Price of wheat that the government offered was much lower than the procurement price that was offered in open market. Due to an upward revision of the MSP in 2008-09, government procurement has increased significantly. However open market prices have remained higher than the MSP even now.
Since stocks fell short of the requirement, government was forced to import from abroad at a much higher price. Irony of the situation is, while refusing to give Indian farmers adequate MSP, the government did not hesitate to give the importer a higher price. Now a large quantity of wheat is being hoarded by the private sector and there seems to be little that has been done in order to stop such practices. In fact, speculation over bad monsoon has fuelled further hoarding resulting in the present level of inflation.
Source: Agricultural Statistics of
Overflowing Godowns and Rotting Grains: Recently, both electronic and print media have carried the stories of rotting up grains which were kept in open in FCI godowns. Ironically the bourgeoisie media, which remained silent on the plight of hungry millions for decades came up with apparently touchy headings like this one: “Millions go to bed hungry as millions of tonnes of wheat rot in open in
The above incidence not one off affair- for few decades food grains have been wasted. The colossal negligence becomes unbearable in the present context of high levels of inflation. In a situation where excess grains are rotting up, the government could easily universalize the PDS and distribute the grains. With this it could have prevented these grains from rotting up, contained inflation and at the same time fed hungry bellies. Instead government chooses to remain silent on universalisation of PDS. The dogmatic reliance on private sector in food becomes more apparent when the government plans to introduce food coupons and reduced food subsidy. There has been a substantial decline in food subsidy from Union Budget from Rs. 56002 crore in 2008-09 to Rs 55578 crore in 2010-11.
There are several measures taken by the government which undermine the Food Corporation of
Source: Union Budget, Expenditure Budget, Vol2
As rightly pointed out by the media, government severely lack storage facilities. At present there are about 492 warehouses through out the country. In these warehouses less than two third of the grains can be kept in government’s own constructions, whereas, a sixth of the grains are kept in the open and remaining of the grains are kept in hired facilities. Almost 17 lakh metric tonnes of grains are kept in the open to rotten course of time. In order to create new warehouses government allocated a paltry Rs120crores for XI Five Year Plan. This is highly inadequate. Much greater amount of funds are required to renovate existing warehouses and create new ones.
Source: Central Warehousing Corporation of
Subsidizing Alcohol Production:
Another significant development that has recently come to public notice is the issue of public subsidy provided to distilleries to produce grain based alcohols. Several state governments including
Soaring Profits: The Government of India has allowed duty free import of raw and refined sugar till December 31 2010, extending it from erstwhile deadline of March 31. It may appear to be a rational decision, given the shortfall in production and skyrocketing price of sugar. However, there is a rider. Mr. Sharad Power has assured that government would not import sugar directly. This puts government’s intention to contain prices in doubt. The private importers would import up to a certain point, which would never be sufficient to reduce prices considerably. Further more, the private players would hold the cheap imports only to release at an opportune time, which would maximize their profits. Instead, government could import sugar and distribute through fair price shops to give some respite to the consumers.
A series of deregulation of sugar industry, disinvestment of public sector sugar mills, withdrawal of sugar from APL commodities, subsidising production of ethanol and power and above all the patronage of Union Agriculture and Food Minister, Mr. Sharad Power for mill owners have allowed them to manipulate supply of sugar and garner huge profits. In the last few years profit of leading sugar mill owners have increased many folds (figure 5). Measures to ban future trading in sugar, imposing stockholding and turnover limits, raids of sugar mills in UP and Maharashtra are measures too little and too late. Mr. Pawar was absolutely right when he said that inflation is because of prosperity. Even a novice can understand that he meant to say that it is prosperity of his biggest support base, the sugar mill lobby. In fact, his policies have ensured that the interests of the group he represents are well taken care off, what if millions of Indians suffer!
Overall, the food economy in the country is reeling under deep crisis. I have not even attempted to capture the entire gamut of the problem, rather, highlighted few of the relevant issues, basically to draw home the point that the Union Government shows no intention to tackle the situation fundamentally. What it is consistently trying is to do some cosmetic changes to keep its pro-people image intact, without tampering with the business interests.
Source: CMIE, Prowess