Govt set to unveil new package to combat price rise

Food inflation, measured in terms of the Wholesale Price Index, ruled at 17.5% for the week ended 23 January from a year earlier—an 11-year high.

The Congress-led United Progressive Alliance (UPA) government has been under political pressure to curb inflation. The Congress Working Committee (CWC), the party’s apex decision-making body, expressed concern over spiralling prices on Friday.

Prime Minister Manmohan Singh was asked to “motivate" agriculture minister Sharad Pawar not to “scare people" by making public statements that prices would go up again. Pawar’s warning that milk prices could go up drew criticism.

“CWC told the Prime Minister that the agriculture minister should take the matter seriously," said a Congress leader at the meeting on condition of anonymity. According to Congress leaders who attended the meeting chaired by party president Sonia Gandhi, the Prime Minister told his colleagues that the situation was improving. “The Prime Minister said things are getting back on track," according to party general secretary Janardhan Dwivedi. “The welfare measures introduced by the UPA government have also started showing results."

The food price proposals, likely to be announced by Singh during his meeting with chief ministers on Saturday, include more subsidized rice and wheat to the poor through the public distribution system (PDS). Accordingly, an additional 10kg of rice and wheat would be provided through PDS at the minimum support price of Rs10.80 a kg. “The idea is to release 2 million tonnes (mt) of wheat and 1 mt of rice in the system, which will increase supply and help arrest inflation," said an official in the know of the development, who did not want to be identified given the sensitivity of the matter. The same person also added that the government has calculated an additional subsidy outgo of Rs280 crore this fiscal because of this measure. The proposals have been put together by an inter-ministerial group headed by cabinet secretary K.M. Chandrasekhar. It also decided that Food Corp. of India (FCI), the procurement agency, will auction wheat and rice at select districts to small millers to prevent the bigger ones from cornering stocks.

In sugar, prices of which have increased by Rs10 in the month ended 15 January and which has a supply shortfall of 7 mt, the government proposes a national campaign to cut consumption. It has also been suggested that processing of imported raw sugar lying at ports be expedited and stock holding limits be strictly enforced by states. On pulses, it has been decided to step up sales of yellow peas, the cheapest variety, at Rs26 a kg through institutions such as National Agricultural Cooperative Marketing Federation of India Ltd, or Nafed.

The group was of the view that pressure on onion, potato and milk prices was easing and hence would not require a supply-side intervention. The same was concluded for potatoes, where prices have fallen from Rs24 to Rs11 in three months (November-January), and milk, where prices have remained more or less stable at Rs22 over the year.

The cabinet committee on prices had convened a meeting of all chief ministers last month to curb hoarding. After the meeting, finance minister Pranab Mukherjee said the rise in sugar prices could be attributed to excess demand, but the inflation in rice, wheat, pulses and vegetables was due to supply-side problems that need to be addressed jointly by the Centre and the states.

Agricultural economist Y.K. Alagh said enhancing foodgrain supplies was a good measure and that FCI should play a proactive role in this. “This also has macroeconomic implications as it helps suck out the purchasing powers of the consumers. The government should listen to the Reserve Bank, which is saying food inflation is high and something needs to be done about it," said Alagh.

Liz Mathew contributed to this story.

sangeeta.s@livemint.com