Retail inflation is not just about petrol, diesel

TS Ramakrishnan | Updated on: May 16, 2022
Farmers need a helping hand

Farmers need a helping hand | Photo Credit: KRISHNAN VV

Rather than cut fuel prices, encouraging farmers to step up cultivation of oilseeds and raising LPG subsidy and vegetables will ease food inflation 

It is true that a reduction in the prices of petro products will result in a modest fall in the prices of various commodities. However, the reduction in petro prices will happen only when both Central and State governments forgo a substantial portion of the tax collected or when public sector oil companies bear additional losses, or both. If there is certainty that international crude oil prices will fall below $80 per barrel in a couple of months, the government and PSUs may bear the reduction in taxes and losses, respectively, and bring down the inflation. There are, however, no signs that indicate this trend at present.

Unless the oil import deal with the Russian government succeeds, where Russia commits to supply a substantial portion of India’s crude oil demand at 30 per cent discount compared to international crude oil price, there seems to be no relief for India on the crude oil prices front. It may not be, therefore, wise on the part of the Central/State governments to reduce oil prices now, as this will be seen as lazy policy-making to bring down inflation.

The Centre, however, has been initiating many policy measures to control inflation. To overcome the reduced import of palm oil, the government introduced Oil Palm Development Programme (OPDP), and it is yet to yield results. After CPI index on cereals and products (with a weightage of 9.67 per cent in CPI basket) rose by 5.96 per in April 2022 from a year earlier, the government prohibited wheat exports.

But there are many more measures that would help contain CPI. The basket of consumable items in CPI that has been contributing to inflation much more than the overall inflation must be identified and studied.  

As per the CPI data released on May 12, the price of edible oil and fats, with a weightage of 3.56 per cent in the CPI basket, increased by 17.28 per cent in April compared to a year back. India imports about 50 per cent of its edible oil requirement and the huge price increase in the international market has resulted in about a 70 per cent increase in domestic prices in the last two years.

MSP on oilseeds

Although the government reduced Custom duty on edible oil drastically from October 2021 and has extended it now up to September 2022, unless the dependency on imported edible oil is reduced to a minimum, there will be no relief. The Centre should increase the MSP of mustard, groundnut, sesame and sunflower oilseeds as much as possible so that farmers move towards the cultivation of these crops in the Kharif season of 2022 itself.

The government should also aggressively procure oilseeds at the new MSP from the farmers and auction them to the traders immediately, even if it results in loss. Given Indian agriculture is largely rainfed, if the signal goes to the farmers that the government is ready to procure oilseeds at a much higher price till India achieves self-sufficiency, the area under oilseed cultivation may double in the 2022-23 kharif season itself.

The second highest increase is in vegetables (with a weightage of 7.46 per cent in CPI basket), whose prices rose 15.41 per cent between April 2021 and April 2022. Unlike non-perishable food items, all vegetable prices cannot be maintained at the same level as yield and supply vary widely every month. However, there is a huge gap, of about 300 per cent, between what farmers get and what ultimate consumers pay for every unit of vegetable sold.

The government should encourage vegetable farmers to own small cargo trucks — by providing them bank loans at reasonable interest rates — and sell their yield without the help of intermediaries to customers in nearby urban and semi-urban locations. By and large, these vehicle purchases have been supported by NBFCs and moneylenders at much higher interest rates. Rather than focussing on cold storage facilities, the best option is to ensure that vegetables reach the customers as fresh as they are. This would increase the vegetable cultivators’ income and reduce the end prices for consumers as well.

The price of ‘fuel and light’, which constitutes 7.94 per cent weightage in CPI basket, rose by 10.80 per cent in April from the year-ago period. If the government gives 50 per cent subsidy on LPG cylinders, it will provide a big relief for the masses. The expenditure for the Centre will only be a few tens of thousands of crores and it will not have to prod the State governments to reduce taxes as in the case of petrol and diesel.

These measures may take about three to six months to bring down CPI inflation to less than 6 per cent. However, the signalling to the public is vital as it will give hope to the people that the inflation will fall in the future. In the absence of the aforesaid measures, the Monetary Policy Committee of RBI, on its part, may keep increasing the repo rate steeply in the subsequent meetings and that would not augur well for GDP growth. 

The writer is a public policy analyst

Published on May 16, 2022
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