Singapore: Finance minister Palaniappan Chidambaram on Wednesday said it was “outrageous” for countries such as the US to be turning food into biofuels at the cost of feeding the world’s poor who are already hit by the current surge in oil and food prices.
He said developing economies were shouldering an “enormous burden” from the relentless rise in prices of food and commodities.
Speaking at a lecture at the Lee Kuan Yew School of Public Policy in Singapore, Chidam-baram said the situation was worsened by the diversion of food to produce biofuels in some countries, citing the US as an example, where he said it was estimated nearly 20% of corn goes to making biofuels.
“It is a sign of the lopsided priorities of certain countries that they will resort to measures that will produce fuel at a cheaper cost in order to meet the transport requirements of a section of their population, even while a larger proportion of the world’s population is deprived of food at reasonable prices or, as in the case of some countries, deprived of food altogether,” Chidambaram said. “I think it is outrageous and it must be condemned,” he said.
Maize, soya beans, sugar cane and other crops are seen as sources of clean and cheap biofuels. This means less grain is available for human consumption, driving up prices for basic foodstuffs.
Chidambaram said the prices of maize, rice and wheat have at least doubled between 2004 and last month, while commodities such as crude oil and metals have doubled or tripled in price. This places a strain on the finances of countries such as India, which subsidizes food and fuel.
Chidambaram said the rise in oil prices from about $30 (Rs1,203) a barrel in 2004 to above $100 this year is another example of “greed overtaking the common good of the world.”
“Oil producing countries have struck a gold mine. Demand is very high...they think that this is a great time to reap in the profits,” Chidambaram said. “I understand that from a commercial point of view, but it’s hurting the world economy.”
Chidambaram also criticized American regulatory failures for the subprime mortgage crisis that has wreaked havoc in global financial markets and undermined India’s own economic outlook.
“Who is responsible for the global uncertainty? The subprime mortgage market crisis that seems to have triggered the current turbulence is solely due to poor regulations and lax supervision,” he said.
Chidambaram said India expects economic growth to be near 9% in the fiscal year ending in March although financial market turbulence is making it harder to achieve such growth rates.
He said problems stemming from the credit markets would affect India, even though only one Indian lender had exposure to US subprime mortgages. “Turbulence in the financial markets has added to the difficulties of sustaining high growth,” he said after the lecture.
“Indian banks, save one, did not have any exposure to the subprime mortgage market and hence did not suffer any first order consequences. However, as the crisis moved from one market to another, and when it entered the credit market, the consequences of the crisis are being felt in India, too.”
Chidambaram said the government had taken steps to stimulate demand in the Indian economy.
“We believe that the measures announced in the recent Budget—including a significant reduction in the personal income tax, expanding and deepening the corporate debt market, and large outlays of public expenditure on education, health, roads, irrigation, etc.—should encourage both domestic and foreign investors to have faith in the India growth story.”
He made no comment about a huge pay rise proposed for government employees, but denied that a Rs60,000 crore debt relief scheme for small farmers was announced with elections in mind.
The fiscal deficit for 2008-09 would be below 3%, Chidambaram said, down from a projected 3.1% in 2007-08, and that gave him the “fiscal space and comfort” to help farmers.
Reuters contributed to this story.