Economic
Highlight
New Delhi, 13 July 2020
Rising Food Prices
EASE FINANCIAL MILIEU
By Shivaji Sarkar
Rising food prices are adding to the woes of
post-corona lockdown recovery. States such as West Bengal, Assam or Uttar Pradesh
are in quandary whether to allow full opening or continue with half-shut
half-open measures. This is adding to supply problems creating artificial
shortage in most parts of the country.
It is a double whammy. Recession has hit not
only India but the entire world. Job losses, reduction in income, fall in
production are common. But in countries like India rising cost of
transportation, due to unprecedented hike in administered petroleum prices, is
telling on the people.
With reduced purchasing power, inflation has
added not only to the problems of consumers but also of farmers. Despite higher
minimum support prices, the farmer has not been able to get even the minimum
for either wheat, corn, potato or any other produce. He is forced to sell at
any available price.
Additionally, since dhabas (roadside eateries), hotels and processing plants remain
under lockdown the demand for most vegetables or food grains is low. It has a direct
bearing on most farm produces. For example, corn fetched Rs 2200 per quintal in
2019 but this year it is difficult to get even one-fourth of the price. So a
farmer who earned Rs 20 plus lakh last year, despite better production is
content with just Rs 5 lakh.
Similarly, potato and other vegetables see a
slump. So the price for the consumer is high. The farmer, however, has an earning,
which would not be more than what he earned last year. The expected growth on
the rural strength of the economy, that may have been a reality till February,
is not to be seen now.
The farm sector is in trouble as input costs
have increased manifold during the past few months. Even irrigating the fields
cost more than double as the administered price of diesel is creating new
records. People are not beneficiaries of the crash in crude prices to around
$40 a barrel. Taxes and higher prices have acted heavily.
The official view that petroleum products are
used only for transportation and higher fares or freight can make up for the
losses is a fallacy. Any society that pays higher fuel cost suffers more than
one way. It erodes income, reduces purchasing capacity and causes overall
slowdown at a time when pace in production is a must.
So rising food prices in reality is
pre-corona phenomenon. Even in December 2019 these were rising. The consumer
price index (CPI) rose 14.2 per cent on an annual basis. This was the highest
increase since December 2013. The food price index of the UN Food and
Agricultural Organisation (FAO) rose 12.2 per cent in December, the highest
since 2017.
The latest 20 to 40 per cent rise in prices
of vegetables – potato, tomato, lady finger, bottle gourds, brinjals and others
is attributed to higher labour costs and 15 to 20 per cent more transportation
costs. Supplies have reduced by about 15 per cent due to summer rains damaging
the vegetable crop. The shortage of labour following reverse migration has
increased wages of the labourers required.
These all reflect in vegetables and other
food grain prices. Even prices of rice and wheat have increased in the market
despite a massive dole being given to the poor by the government. It is said
that in about 11 States free food grain distribution has not been implemented
as planned.
According to the Ministry of Consumer Affairs
data, 36 States and Union Territories lifted 6.38 lath metric tonnes (mt) of 8
lakh mt allocated under Atmanirbhar
Bharat for May and June for migrant workers. Till June 30, 1.07 lakh mt,
about 13 per cent food grain was distributed. Andhra Pradesh, Goa, Gujarat,
Jharkhand, Ladakh, Maharashtra, Meghalaya, Odisha, Sikkim, Tamil Nadu, Telangana
and Tripura distributed not more than one per cent of the food lifted!
The crisis has been building up on the price
front since the 2019 General elections. The Food Corporation of India (FCI)
procured 36 million tonnes prior to that in 2018, the highest since 2012-13,
prior to the 2014 Lok Sabha polls. It swelled FCI stocks to 75 million tonnes –
33 million tonnes of wheat and 42 million tonnes of rice, and is estimated to
be about one-third of the total production.
This has been utilised well for distribution
till coming November at a cost of Rs 1.5 lakh crore. But the mismatch in
distribution, the market supplies and other factors have continued to add to
the rise in prices. Interestingly enough despite free supplies, the prices have
not come down in rural markets either. This is intriguing and is attributed to
reverse migration causing large influx in rural areas.
The prices of edible oils too have noticed
significant rise all over. The village markets have seen spike in locally
produced oils. This has happened due to rise in mustard and other oilseeds
prices, labour costs, electricity and diesel prices. Overall expelling and
freight costs have increased.
In June, the RBI noticed that the inflationary
situation has returned since April, when the price index surged by 8.6 per cent
from 5.8 per cent in March owing to price spurt of vegetable, cereals, milk,
pulses, edible and sugar. Its monetary policy committee (MPC) says, “The macro-economic
impact of the pandemic is turning out to be more severe than initially anticipated
because of supply disruptions and demand compression. Beyond the destruction of
economic and financial activity, livelihood and health are severely affected”
The MPC says it is necessary to ease
financial conditions further. It has reduced interest rates, which have hurt
the depositors, senior citizens and the poor the most. In fact, cut in interest
rate has not helped anybody. Rather, it has caused hardships and further
reduced purchasing power of the most vulnerable classes. The high income-tax,
bank charges, rude bank staff behaviour and tax on deposits are further hurting
the economy.
There is no magic wand, but a soft policy
approach and reduction in income-tax rates, which may momentarily accrue less
to the official kitty, would be more beneficial in the long run with the health
of the economy back. With a benevolent tax regime, prices too can mellow. It
would reduce governance costs and add to the well being of the country. –INFA
(Copyright,
India News & Feature Alliance)
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