The Hindu Business Line : Taming prices

Untamed escalation of food prices has got the government worried even as costlier food drove up the annual inflation rate to a multi-year high of 12.63 per cent as of August 9. Festival demand is beginning to kick in; and consumption of essential foods such as grains, sugar and edible oil usually rises manifold between August and October. Kharif 2008 crop prospects have certainly improved with rains in the last three weeks, but the crop size is still uncertain. Sugarcane, pulses and cotton have lost acreage. Harvest is likely to be delayed by a fortnight because of erratic rains and late sowing in many areas. It is in this background that the Cabinet recently took a clutch of decisions aimed at augmenting supplies and moderating the price rise. There are clear indications that New Delhi is ready to flex its muscle to meet its price objective.

Open market sale of about 50 lakh tonnes of wheat over the coming months is sure to have a moderating influence on the prices, which seasonally tend to firm up from September onwards. The unprecedented level of procurement — 220 lakh tonnes — from the last harvest in April-May is now proving to be a major source of strength for use as intervention stocks, although carrying costs and, in turn, food subsidy this fiscal are sure to balloon to levels far beyond that seen in recent years. As for edible oils, fortunately, the international market has turned benign with prices correcting significantly following rising inventory and improved global production prospects. The full benefit of lower prices must flow to consumers. Supply of cooking oil at subsidised rates through the PDS is a welcome step. Specifically for the PDS, government parastatals should be allowed to import refined oils at zero duty. New Delhi has also reportedly ruled out any hike in Customs duty on edible oils, at least for the time being. This will provide relief to consumers. The Cabinet has decided to extend until April 2009 the extant storage restrictions on essential commodities. What is projected as a de-hoarding measure is actually an act of desperation. No wonder, it has attracted flak from trade and industry. The restrictions reflect failure to ensure that production and supplies of essential food products continually catch up with rising demand.

Fiscal, monetary and administrative measures can control food prices only to some extent. The Indian market is beset with supply-side issues that have to be addressed through investment and growth-oriented policies, and not by administrative fiat. With elections round the corner and the inflation rate rising alarmingly, the trade and industry can expect New Delhi to explore every conceivable option to make a dent on prices.

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