Domestic and global food prices are on fire and are likely to remain high. A variety of factors, from floods in Australia and Sri Lanka to export bans in countries such as Russia, are ensuring a pincer- like movement in demand and supply globally. This necessitates a relook at some domestic practices that continue to build upward pressure on food prices.
There are two areas that deserve immediate attention. One is the urgent need for reforms in the procurement of foodgrains such as wheat and rice in the country’s food catchment northwestern area. At the moment, a combination of high taxes on purchases, a clogged transportation system that takes months on end to move grains and the downright regressive features of the Agricultural Produce Marketing Committees (APMC) Act ensure that price rises will continue. The time taken in moving stuff from farms to the last mile alone is enough to ratchet the Wholesale Price Index.
Unwinding a problem that has accumulated over many decades is not easy. For example, the rates of taxation on market produce in Punjab and Haryana range from 8-12.5% on the value of the produce. This is taxation on a scale that funds the expenditures of these governments. Making them back down is not an economic problem but a political one. These taxes ensure that large private companies, which can reap scale economies and bring efficiency to the trade, are simply not interested in entering the market.
Then there is the issue of the government “laying its hands” on as much grain as possible for the public distribution system and food security measures. Were it a more efficient operator, this would be an ideal solution. It is not now. At the same time, the system is geared to ensure minimal private sector involvement. So the more the government . So the more the government tries to solve the problem, the worse it gets
The second issue that deserves attention is the relative apportionment between subsidies (which is nothing but disguised consumption) and investment in agriculture. At the moment, the scale is tipped in favour of the former—ever rising minimum support prices, cheap fertilizers and diesel ensure that precious little is left for investment in research and development and actual farm level implementation of new technologies, seeds and varieties. India needs more output of pulses, dairy products and other commodities. Unless this, again a political economy issue, is sorted out, we should learn how to live with higher prices.
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