Can Inflation be tackled?

Can Inflation be tackled?
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First Published: Mon, Apr 14 2008. 01 29 AM IST
Updated: Mon, Apr 14 2008. 01 29 AM IST
I think bewilderment, anger, frustration are all legitimate responses to the news that the provisional wholesale price index (WPI) jumped 0.5% week-on-week to 7.41% for the week ended 29 March. Meanwhile, the figure for the the week ended 2 February was revised to 4.74%, from the earlier 4.07%. The major rise has been in food, vegetables, cement and steel.
Bewilderment, because the Prime Minister (PM) recently said at a farmers’ forum that we cannot return to an era of “blind control” and depress the terms of trade in agriculture. It is said that farmers seek markets and employment, not subsidies, and that we must make farming more economically viable. I thought the huge farm loan waiver, the increase in fertilizer subsidies, the promise of rice at Rs2 per kg in Karnataka, the National Rural Employment Guarantee Programme, all indicated the opposite — more subsidies, more credit for the same unviable farms, income from “ditch digging”, keeping procurement prices low to the disadvantage of the farmer, etc. And all those who can “make farming viable” are with the PM, not among the audience which he was addressing — what are they going to do about it?
Anger, because this was foreseen several months ago. The Reserve Bank of India has been warning us at least for the last six months; global wheat price increases were known to the agriculture ministry for the last eight months, and the biofuel diversion even longer. Yet, we have no programme to increase supply. In Bangladesh, for example, after the devastation from floods last October, faced with galloping food price inflation, the government (an interim one, at that), swung into action. Seeds and fertilizers were provided for the boro rice crop that covers 70% of the annual production. Pesticide application was monitored. Even now, the websites show close monitoring of the crop, district by district, by the authorities. The crop is likely to be a record one, and rice price increases have already started to slow. But we still do not have clear information about the winter wheat crop. Will we import wheat or not? There simply have been no responses to tackle supply.
Finally, frustration, that the fiscal responses being announced do not touch the core of the problem. The tariff cuts will help edible oil prices, not pulses, cereals and vegetables. The export ban will help only if there is adequate supply. There is little evidence that corn has replaced wheat substantially as a result of demand for biodiesel, and certainly not the area under vegetables. The secondary price effects of increases in commodities, steel and cement are yet to kick in.
Note that there is an eight-week lag before the initial estimates of WPI are firmed up—which has been ever upwards. So, even the current numbers are understated. The problem is larger than it has been made out to be. Perhaps we are expected to accept the government’s resignation that it is so ordained, and that interest rate hikes and tightening of liquidity are in the offing, and the slowdown of growth inevitable. But it is difficult to accept that very little can be done.
If food security is emerging as a major issue, surely this can be an opportunity to increase production, productivity and efficiency in agriculture. We can focus on seeds, fertilizer and pesticides even at high subsidies in the tradition wheat and rice belts. If in those areas, private sugar mills can provide inputs to farmers for better cane varieties, why can’t we do that for cereals? It is a decade since our scientists produced a new high-yielding variety suitable for our agro-climatic zones. Can we incentivize that? Can we focus on achieving cereal self-sufficiency in three years and implement all that is necessary? Remember, the same machinery performed during the 1970s and early 1980s. Agriculture has taken a back seat since the great reforms of 1991, and needs to be brought upfront.
The area under oilseeds is already growing very fast, and if we encourage organized retail, area under pulses and vegetables will, as well. These are crops best left to the private sector to encourage with any policy or tax concessions that they need. Another neglected area is fisheries and meat production. Farms to grow meat can be established where agriculture is not possible. The 1978 reforms in China started in agriculture, by making the farmer market-oriented and letting him sell his surplus in the open market. We have gone the other way, and are about to pay for the consequences.
At the other end, there is need to increase production of steel, cement and of all the minerals the country has reserves of. But our mining policy is caught up in knots. There is sufficient evidence, though inadequate exploration, of the riches that the subcontinent possesses, including diamonds and gold. It is up to us to exploit them.
India has been very good at crisis management. This is yet another crisis of supply and strategies need to be thought through and implemented. Instead of blaming the world and quoting international data, let us look at what we can achieve by ourselves.
S. Narayan is a former finance secretary and economic adviser to the prime minister. We welcome your comments at policytrack@livemint.com
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First Published: Mon, Apr 14 2008. 01 29 AM IST