Economic Highlights
New Delhi, 7 April 2012
Budget Impact
PRICES SHOOTING UP
By Shivaji Sarkar
The Indian economy is
heating up once again. Prices are rising high. Alarm bells should be ringing as
the indicators are not showing any signs of improvement in the performance of either
the industry or the manufacturing sector. Indeed, the Union Budget is showing
its fangs. The days of price moderation witnessed in January and February are seemingly
over. Contrary to Prime Minister and Finance Minister’s claims, commodity
prices are on the rise again. Even during days of moderation the price index
rose by 6 per cent – much higher than previous years, when it used to rise by
not more than 3 per cent during winters.
Prices of all commodities
including fruits and vegetables have started moving upwards despite a
government report stating better production. Potato, where a glut was being
feared, is also fetching high retail prices though farmers are yet to get back
their production cost. But the highest rise is being witnessed in edible oil,
energy prices and all food items – a mix of policy non-application, poor supply
management and the lack of will to maintain a low price regime – essential for
growth of the economy.
Food prices in effect
have risen by over 26 per cent in a year. Its further increase should be a
concern not only for the Government but also for the industry. The latest
Labour Bureau data states that on an average a worker spends 49.71 per cent (nearly
50) of his income on food alone. In the case of rural workers it is 59.31 per
cent. A family spends another about 10 per cent of income on transportation and
more than that on energy consumption.
On an average, 70 to 80
per cent of the income is spent on items that leave little scope for looking at
buying minor luxuries, including clothing. No wonder the overall growth is slowing
down. The 6.9 figure supposedly achieved by March this year may be difficult to
maintain.
Imported edible oils such
as soya and palm are playing havoc with the economy. These are hitting the
indigenous mustard oil sector. In fact, the lack of a policy on increasing
edible oil production has thrown the domestic market wide open to manipulation
by importers, usually the big corporates. Thus, the prices are being pushed up.
During the past month, palm and other edible oil retail prices have been raised
by Rs 6 to 8 per litre though the imported price increase is almost 50 per cent
of it.
The reasons for an increase
in edible oil imports are higher shipment cost and higher price adjustment
owing to the sliding of the rupee against the dollar. As India buys 50
per cent of its requirement in the international market, dealers are jacking up
prices.
Further, milk prices too are
set to increase once again. Amul Cooperative which was supposed to have ushered
in the white revolution today has become the largest monopoly and dictates
price at will. In less than 18 months, milk prices have increased by over Rs
24. It costs Rs 40 to 48 per litre from Rs 12 to 16.
Then again, onion and tomato
cost almost 100 per cent more than what they were a month earlier. In some
cases, the retail markets have almost tripled the price. This is despite an
increase in production and even the price of carrot despite a bumper production
is rising phenomenally. Insofar as the farmer is concerned, he rues large
production as at the end he is forced to dump it. However, the middle man’s
profit is not affected rather it is on the rise. It may all look simply but
requires a deep probe and rectification. For this critical sector has the
capacity to make or mar the economy.
This apart, it is indeed
a surprise that rice production has increased across the country. In the wake
of the Green revolution, the eastern region has shown seven million tonne
increase in paddy production in 2011. However, strange as it may sound the rice
costs anything between Rs 4 and 8 per kg depending upon its quality. One reason
cited for an increase in some food items is the impact of higher service tax on
the transport sector.
In fact, other items
including eggs, which normally fetch a lower price with the onset of summer, are
more expensive as poultry and other livestock cost have increased because of a
hike in the cost of their feed and fodder and transportation cost. But if the
latest report of the State of Agriculture
is to be believed change in food habit is also responsible for the rise in
prices.
One critical observation
of the National Sample Survey Office is that despite an overall increase in
farm production, the per capita availability has reduced to 444 grams from 550
grams 15 years ago. This is attributed to the phenomenal rise in population.
Food grain production has increased to 244 million tonnes from an average of
200 million tonnes around 2000-01.
Even non-farm goods are
becoming dearer. The impact of the Budget has resulted in subsidy cut and
increase in excise duty on fertiliser, pesticides and seeds. The higher price
of all these items is increasing the cost of farm investment. This is a critical
issue. Farm prices decide the basic cost of wages and production. If these go on
rising, all other input costs at every level are too bound to go up.
There is a nagging fear
that inflation in 2012-13 may go through the roof. It would not be an easy task
to increase industrial production. Food prices, which are indicated to be
higher, would stymie the growth of all sectors.
Undoubtedly, India remains
an overheated economy. Even the rural cushion which was available earlier has
gone missing. Inflation remains its serious concern. Rise in farm production is
not bringing it down. Small decline in any commodity production can lead to
severe price fluctuation and turn the market topsy-turvy.
Intriguingly, the argument
given to us for reforms was that liberalization would increase production and
productivity. It would reduce operations controls on businesses and private
sector involvement would bring productivity, better management of assets and
technology. Nothing of this sort has happened. In fact, private sector has
shown it is as much or even more corrupt and unproductive than the public
sector. Barring a few well-managed and well- meaning companies, majority are
greedy, manipulators, tax avoiders and having poor quality and customer
service. Profiteering has become the key word.
Theoretically, when
capacity goes up prices should come down. When competition goes up prices
should go down. Why has this not happened? People need to ask themselves and realise
who is to be blamed.—INFA
(Copyright,
India News and Feature Alliance)
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