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Anxiety over food inflation

Anxiety over food inflation
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First Published: Mon, Aug 03 2009. 08 52 PM IST

Illustration: Jayachandran / Mint
Illustration: Jayachandran / Mint
Updated: Mon, Aug 03 2009. 08 52 PM IST
In recent weeks, economists and business commentators in India can sometimes be caught questioning whether the fall in the Wholesale Price Index (WPI) is deflation or disinflation. But to the average man, these questions are too abstract: The reality on the ground is that food prices are rising—prices of food articles increased 1.2% in last week’s WPI data—and that’s what worries him.
Illustration: Jayachandran / Mint
And with the monsoon 19% below normal as of late July, the only question that matters to him is how India will deal with food inflation.
It’s worthwhile, then, to examine how well India is prepared for a replay of last summer. Since demand for food isn’t going to change anytime soon, the country remains at the mercy of government agencies that manage supply.
First, India seems well poised when it comes to food stocks. As of January, grain stocks stood at 37 million tonnes (mt); in January 2008, this was only 19 mt. Last month, the government noted stocks at 53.5 mt—above the annual requirement. Given that India has banned the export of some grains and raised minimum support prices (MSPs), or the price floor, this isn’t surprising.
Second, foreign exchange reserves—in the event India has to spend on rising imports—aren’t discouraging. In August 2008, reserves stood at $312 billion; last month, this was $267 billion. Yet, even if we have money to spend, will other countries export to India? The 1930s Great Depression witnessed beggar-thy-neighbour policies when one country’s protectionism was matched by another. If there’s a Great Inflation, and if it’s not just India that bans exports, will we see starve-thy-neighbour? Something like this already happened last year.
Third, there’s a drop in crops sown. As of the middle of last month, the sowing for rice was 21% lower than the corresponding period in 2008. The shortfall for moong dal, for the corresponding period, was 26%.
These mixed indicators are neither cause for alarm nor celebration. What they do point to, however, are the risks posed by either government inaction or, more often, overaction. On the one hand, investments in, say, irrigation are still lacking: Annual per capita consumption of cereals has been falling since the 1970s, a reminder of India’s food insecurity. On the other hand, the government complicates matters by throwing fertilizer subsidies indiscriminately, imposing bans on exports and futures markets and raising MSPs by margins as large as 30% for rice—leading to wanton government hoarding.
Given such government inabilities, the average man is right to be worried.
Is India well positioned to fight food inflation? Tell us at views@livemint.com
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First Published: Mon, Aug 03 2009. 08 52 PM IST