Singapore: India on Wednesday blamed the US policy of diverting food grains such as corn for producing bio-fuels for the spurt in food grain prices globally.
Finance Minister P Chidambaram also criticised lack of adequate regulations in the US sub-prime market, which has caused global financial uncertainties.
“It has been estimated that nearly 20% of corn grown in the United States is diverted for producing bio-fuels. As citizens of one world, we ought to be concerned about the foolishness of growing food and converting it into fuel,” Finance Minister P Chidambaram said here on Wednesday.
He said the demand for staple food was on the rise, leading to higher prices, but diverting food for fuel had also contributed to increase in food prices.
Addressing a gathering of academics, scholars, diplomats and bureaucrats at the Lew Kuan Yew School of Public Policy in this island state, the minister said this process (diversion of food grains for bio-fuels) was “a sign of the lopsided priorities of certain countries”.
Referring to the current global uncertainty and the sub-prime mortgage market crisis that triggered the turbulence, Chidambaram blamed it solely on poor regulations and lax supervision.
“If this had happened in developing countries, we would have been lectured on the virtues of bankruptcy. Since this is happening in developed countries, no one pauses to ask whether all the old arguments are not being made to stand on their head,” Chidambaram said to applause from the audience.
Attributing rising global food grain prices to domestic inflation, he said that prices of maize, rice and wheat, all staple items of food, had either doubled or trebled between 2004 and 2008.
The Indian Finance Minister termed the rise in the price of crude oil as “greed” overtaking the common good of the world. The minister also noted that there is no case for raising food prices so high that many poor people could not buy food anymore.
Wondering what had happened to the declaration of the Millennium Development Goals and the inspiring slogan “Make Poverty History, Chidambaram said, “If we are serious about ending poverty, the place to start is to make food and fuel available at reasonable prices at which people can consume adequate quantities of food and at which fuel becomes not a constraint but a driver of growth.”
The world must heed the voice of developing countries. In the development of these countries lies the key to putting an end to poverty and making the world a better and safer place for all of humanity, he said.
The relentless increase in commodity and food prices had put enormous burden on the developing economies such as India. He said prices of commodities like oil, urea, metals and minerals had all shot up over the past three years.
“India imports significant quantities of urea. The price of urea was $175 per metric ton in 2004. By April 2007, it had increased to $288 per MT and in January 2008, it was quoted at $370 per MT,” he added.
Noting that there were clear signs of a slowdown in the world economy and signs of rising inflation in many countries of the world, Chidambaram said “global slow down, rising inflation and subdued interest in investment make for a combination that can have only negative consequences for developing countries.”
He said New Delhi had taken steps to stimulate domestic demand in the Indian economy and added that the measures in the recent budget should “encourage both domestic and foreign investors to continue to have faith in the India growth story.”
Referring to India’s high growth rate, Finance Minister P Chidambaram said the country’s experience over the last three decades had been one of sustained growth, with each decade being an improvement over the previous one.
He said India’s average growth rate of 7.6% a year since 2001-02 till 2007-08 was a unique experience as it was based on the principles of democracy and rule of law.
“The agenda is one of sustained growth in a market economy that takes care of its poor and disadvantaged. While markets ensure efficiency, a democratic governing system ensures that the reform process has a human face,” he told the gathering.
Chidambaram said India had not hesitated to use fiscal and public policy instruments to contain inflation and to ensure that the growth process created jobs.
“The two factors that cause misery to the poor are inflation and loss of jobs. These two factors are highly correlated to the structural adjustment process. When inflation rises or when there are large-scale job losses, the people begin to question the justification and advantages of reforms,” he noted.
Chidambaram referred to the “bold step” taken by the Indian government called Fiscal Responsibility and Budget Management Act (FRBM Act), which he said was a wise and courageous decision in retrospect.
He also referred to the fiscal policy steps by the government to contain inflation and to stimulate job-creating growth and mentioned the decrease in customs duties, Excise duty and service tax.
Giving examples of areas where fiscal policy had been used to advance the objectives of price stability and growth, Chidambaram referred to slash in excise duty on small cars with a view to make India a hub for small cars.