New Delhi: India is worried about the impact on inflation from rising farm labour costs, although a good harvest should dowse some of the fire in consumer prices, Ashok Gulati, chairman of the agriculture ministry’s commission on farm costs and prices, said.
The government had already purchased about 19 million tonnes of wheat by 2 May and is heading for nearly double the grain stocks it needs by end-June, he told Reuters in an interview.
Gulati, who took up his post around two months ago, said a good harvest in India, one of the world’s biggest producers and consumers of wheat and rice, could help curb food inflation, but concerns remained especially about rising farm labour costs.
“The crop is good, to some extent that will dowse the (inflation) fires,” he said.
India’s food inflation marginally eased to 8.53% year-on-year for the week ended April 23 from 8.76% in the previous week, but the country’s most widely watched gauge of prices — the headline inflation — is still running well above forecasts at around 9%.
Food inflation in recent months has largely been driven by perishable items such as dairy products, fruits and vegetables, rather than cereals.
Reserve Bank of India raised rates again on Tuesday and said bringing inflation down would take precedence over growth in the short-run.
The Reserve Bank of India has been among the most aggressive central banks anywhere with nine rate rises since March 2010, but its gradual policy tightening has failed to cool inflation initially driven by high food and fuel prices, and more recently by demand pressures.
“We are particularly worried about the cost push to inflation coming from the labour market,” Gulati said, adding farm labour costs had risen 60% in the last three years.
The increased costs are in part a side-effect of the government’s efforts to ensure some paid work for rural households under its National Rural Employment Guarantee Act (Nrega), which guarantees 100 days of paid employment a year.
India, which turned in a bumper harvest last year after a severe drought in 2009, has overflowing grain bins and is under pressure from farmers and industry to allow exports to take advantage of attractively high international prices.
But the government’s commitment to a policy of providing more subsidised basic foods to the poor in its Food Security Bill (FSB) has prompted a cautious approach, despite forecasts the fickle monsoon will bring adequate rains for harvest this year.
“The government has procured around 19 million tonnes of wheat already and the target is about 26 (million tonnes),” Gulati said.
“I would presume at this stage that our stock situation at June end will be about 65 million tonnes.... I wouldn’t be too much surprised if you crossed 65 and headed towards 70.”
Gulati said the weighting of subsidies against investment in the agriculture sector needed to change.
“We are pumping about $9 billion into Nrega and already food subsidies are touching about $13-14 billion,” which could rise to $20 billion if the FSB is passed.
That compares with total resource allocation for growth in the agriculture sector of $4 billion to $5 billion, he said.
“This is a policy paradigm. You have one wheel of the economy that is the nano wheel and then the welfare wheel is the tractor wheel. How do you run the system?” Gulati said.
“I would say 70% of resources for growth and 30% for welfare objectives, but it is the other way around here.”