The Hindu Business Line : It’s time to protect consumer from rising inflation

Mumbai, June 20 Inflation soaring to an alarming 11.05 per cent for the week ended June 7 has raised the level of discomfort for the Government. New Delhi finds itself completely in the defensive as many of its inflation busting measures have failed to deliver enough.

This time, the entire energy sector has contributed substantially to the record increase in prices. Conditions are ripe for a further tightening of liquidity.

It should come as no surprise if the RBI raises the CRR in order to suck out liquidity and also raise repo rates.

Supply constraints

Political parties have begun to demand the head of the Finance Minister who, they allege, has failed to rein in prices. Increasingly, the Government is running out of options.

It has exhausted most of the weapons in its armoury. There is not much that can be done in terms of taxes and duties, save in case of crude and petroleum products, in which customs and excise duties as also local levies are rather high.

In case of food products, the Government has already banned export of many commodities, opened up imports and de-listed some items from the futures counters. Yet, market pries have stayed high because of supply constraints and international influences. In case of edible oil, the complete withdrawal of customs duty on crude oils has failed to check price rise.

There has been a huge revenue sacrifice; but little to show in terms of consumer benefit.

The present price situation betrays the lack of understanding of the policymakers as to how the edible oil market works.

A handful of large refiners, who call the shots, have befitted from the windfall, while consumers have been left high and dry.

As pointed out in the past in these columns, there is case for withdrawal of 7.5 per cent duty on refined oils. A zero-duty regime for the entire edible oil sector for at least the next four months (until kharif oilseeds start arriving) would allow greater inflow of readily marketable refined oils through traders.

Better deal

There will be healthy competition between refiners and traders both of whom will do business at lower margins. Refiners are savvy enough to look after their commercial and financial interests.

This is no time to be overly sympathetic towards processors; consumers deserve a better deal.

By delaying a decision on allowing refined oils at zero-duty, the Government is merely adding to the woes of consumers, while willy-nilly enriching large refiners.

Because it is time to support the consumers, especially the financially vulnerable, there is no alternative to strengthening the public distribution system, and expanding the list of food products supplied through it, by adding edible oil and pulses.

Why is the Centre shying away from locally procuring or importing edible oil for PDS is still unclear.

It has left the import decision to the State Governments.

This is dangerous. There is no reason for the Centre to distance itself from ensuring imports and adequate supplies through the PDS.

If the Centre can arrange for supply of rice and wheat through PDS, it can do so for edible oil and pulses as well. The political Will to act is lacking.

Importantly, inflation control is largely perceived as the duty of the Central Government. Indeed, its actions or inactions can potentially affect market prices.

The sooner this is realised the better for consumers.

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