Good start on ilnflation PDF Print E-mail
Thursday, 19 June 2014 00:00
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Now to follow through with other measures

Apart from the almost habitual exhortation about cracking down on hoarders and black marketers—the largest hoarder is actually the government-owned FCI—the government has done well to start off its inflation-control measures by planning to offload 5 million tonnes of rice from FCI’s overflowing stocks; 15-20 million tonnes would have had far more impact, and the government should have included wheat in it as well, but its early days yet. Reducing inflation in wheat and rice to zero, as has been pointed out earlier, could shave off a fifth from consumer inflation. The decision to ask states to issue orders to bypass mandis is welcome, and something Rahul Gandhi spoke of during the election campaign, but failed to deliver on. The Azadpur mandi, that the Centre now controls by virtue of President’s rule in Delhi is a good place to start as it accounts for 50,000 tonnes of daily arrivals of fruits and vegetables—Mumbai’s Vashi is the next largest at 43,000 tonnes. While reducing middleman commissions in mandis is important given the big difference between wholesale and retail prices, it is a good idea to get into active dialogue with potentially large buyers like Big Bazaar and Reliance Fresh, to encourage them to start farm-sourcing at the earliest. Curbing fruit and vegetable inflation is easier said than done and creating supply chains takes a long time, but the earlier a beginning is made, the better; the budget should follow through with specific capital subsidies for building cold storages, and on removing dehydration of fruit and vegetables from the reserved list for SMEs.

The import regime is an equally important part of inflation control and, as FE’s front-page graphic showed on Wednesday, import duties on fruits and vegetables as well as on protein items like meat and chicken are unconscionably high. Giving states an open line of credit to import pulses and edible oils is a good idea given their production is most likely to be hit by a poor monsoon—just 15% of the area under pulses is irrigated. Equally important, if the minimum support prices are hiked excessively—they rose nearly 39% for paddy between FY09 and FY13, but under 5% in FY14—this will once again set the clock back by getting farmers deeper into their wheat/rice fixation. Indeed, since FCI doesn’t really procure too many items and in too many states—it is essentially two commodities in 5 states—it would be a good idea to trim the MSP list and, in the budget, announce a road map moving away from MSP-based support to a handful of farmers to a more broad-based income support for all farmers. MSPs have to be linked to fertiliser subsidies and the government has to clearly link FCI procurement to states like Punjab cutting down on mandi taxes and Madhya Pradesh and Chhattisgarh on the excessive bonuses they offer to farmers—the former adds to FCI’s costs and the latter encourages greater cultivation of wheat and rice. Income support, as opposed to crop support, is also WTO-compatible. A more modern use of futures and options is called for, especially in global markets, and for that the BJP needs to get over its mistrust of important financial instruments.


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