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    Rising Inflation: A Timely Warning To Address Structural Elements

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    GRK Murty
    Rising food inflation, especially in vegetables, fruits, and onions, is pushing overall inflation in India to around 7% and threatening to rise further. This poses challenges for policymakers who must balance controlling money supply and inflation with continuing to support economic growth of 8-9%. An expert committee also warned that a proposed policy to ensure food security for 72-75% of the population could distort food markets and require large subsidies. To effectively address inflation, India must fix structural issues in the agricultural system rather than blame seasonal factors, through policies that boost production, provide farmers credit and fair prices, create market infrastructure, and modernize Indian agriculture with technology and reforms. Public and private sector efforts are both needed to make agriculture more productive

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    Rising Inflation: A Timely Warning To Address Structural Elements

    Uploaded by

    GRK Murty
    76 views5 pages
    Rising food inflation, especially in vegetables, fruits, and onions, is pushing overall inflation in India to around 7% and threatening to rise further. This poses challenges for policymakers who must balance controlling money supply and inflation with continuing to support economic growth of 8-9%. An expert committee also warned that a proposed policy to ensure food security for 72-75% of the population could distort food markets and require large subsidies. To effectively address inflation, India must fix structural issues in the agricultural system rather than blame seasonal factors, through policies that boost production, provide farmers credit and fair prices, create market infrastructure, and modernize Indian agriculture with technology and reforms. Public and private sector efforts are both needed to make agriculture more productive

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    Rising Inflation, GRK Murty, Karpuramanjari, Onion Prices in India

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    Rising Inflation

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    Rising food inflation, especially in vegetables, fruits, and onions, is pushing overall inflation in India to around 7% and threatening to rise further. This poses challenges for policymakers who must balance controlling money supply and inflation with continuing to support economic growth of 8-9%. An expert committee also warned that a proposed policy to ensure food security for 72-75% of the population could distort food markets and require large subsidies. To effectively address inflation, India must fix structural issues in the agricultural system rather than blame seasonal factors, through policies that boost production, provide farmers credit and fair prices, create market infrastructure, and modernize Indian agriculture with technology and reforms. Public and private sector efforts are both needed to make agriculture more productive

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    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    76 views5 pages

    Rising Inflation: A Timely Warning To Address Structural Elements

    Uploaded by

    GRK Murty
    Rising food inflation, especially in vegetables, fruits, and onions, is pushing overall inflation in India to around 7% and threatening to rise further. This poses challenges for policymakers who must balance controlling money supply and inflation with continuing to support economic growth of 8-9%. An expert committee also warned that a proposed policy to ensure food security for 72-75% of the population could distort food markets and require large subsidies. To effectively address inflation, India must fix structural issues in the agricultural system rather than blame seasonal factors, through policies that boost production, provide farmers credit and fair prices, create market infrastructure, and modernize Indian agriculture with technology and reforms. Public and private sector efforts are both needed to make agriculture more productive

    Copyright:

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    Download as pdf or txt
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    Rising Inflation:

    A Timely Warning to Address Structural Elements

    GRK Murty
    All of a sudden, Indian economy finds itself in a quandary: on the one
    hand, the rising inflation is already hovering around 7% and threatening
    to shoot up with the high rise in the prices of vegetables, fruits and
    onions (around 82%), calling for demand-side checks—obviously,
    reining in of money circulation that is currently growing at 15% year-on-
    year, which is of course, growing at a pace lower than the nominal
    growth rate of the economy—and on the other hand, slowing down of
    industrial production to an 18-month low of 2.7% in November that is
    demanding pump priming the economy to maintain growth momentum
    at or around 8-9%, plus the rising concern at the mounting subsidy bills
    and the resulting widening fiscal deficit. And, it is the balancing of these
    counter-demands that is today challenging the wit of the government
    and its policy makers.

    Amongst these growth constraints, it is the rising food inflation that is


    driving everyone, both the consumer and the government, crazy. The
    steep rise of 59% in vegetable prices pushed the food price index to a
    whopping 18.32%. The rise in inflation is, of course, not confined to
    agricultural products alone; it even spread to mineral and petrol prices
    which have gone up by 30.6% and 25% respectively. Nonetheless, as
    the food articles have a weight of 14.34% in the overall wholesale price
    index, any further rise in them is sure to upset the inflation estimates.
    Incidentally, global food prices too have gone up by 30% over the last
    year, mostly due to the fall in production, which again is the outcome
    of changing weather, diversion of land use from food grain production
    to biofuel production, etc., and this in itself is a sure pointer to what is
    in store for the future.

    Whilst on this, it is essential to bear in mind what the expert


    committee set up under the chairmanship of Rangarajan to examine
    the implications of the proposal of the National Advisory Council—that
    proposed legal entitlement to subsidized food grains to both ‘priority’
    and ‘general’ households, covering 72% of population under the first
    phase starting from 2011-12, and 75% in the second phase in 2013-
    14—has got to say. It opined that the recommendations of the NAC
    need to be ‘calibrated’: one, owing to non-availability of food grain;
    two, the potential of such large procurement (63.98 million tons in the
    first phase and 73.98 million tons in the second phase) being pretty
    high to distort the open market food prices, that too, when all this
    requirement has to be necessarily sourced from the domestic
    production, not through imports as it would be much more costlier and
    undependable; and three, it entails ‘large subsidy implications’ that can
    stretch to anywhere around Rs 85,584 cr under the first phase and Rs
    92,060 cr under the final phase.
    Fairness or no fairness of the recommendation aside, it reveals a
    truth: we need to do something solid to fix up the supply-side
    constraints relating to food products—move away from overplaying
    on/blaming seasonal elements and address immediately the structural
    elements that we have been conveniently underplaying for all these
    years. Secondly, any shortfall in agricultural output could only lead to
    serious distortions in the economy, for no civilized nation growing at an
    annualized rate of 7-8% can afford to let half of its population go with
    no food security, that too, indefinitely, while better nutrition is “a
    necessary prerequisite for economic development.”

    After all, agriculture, by itself, is a risky vocation. Globalization has


    only made it riskier. Given our inability to provide food-security to the
    populace, the government must do something concrete on the
    agriculture front. No shortcuts will do. Various reports have earlier
    indicated that there is tremendous potential for increases in
    production—all that it calls for is creation of institutions and right
    policies to build and supply appropriate technologies to farmers
    coupled with timely credit and right price for their output that
    incentivize farmers to produce more.

    Given the nature of our agricultural markets—localized, fragmented


    and thin physical markets, because of which the flow of price
    information remains slow and mostly limits itself to influential market
    manipulators—what is simultaneously required to be done is: create a
    market infrastructure that can effectively transmit market information
    to all concerned well in time. Such free flow of information to
    producers, consumers and policy makers, coupled with creation of
    storage facilities in the countryside, transparent and flexible trade
    policy, and removal of state-level regulations that can pave the way for
    creation of a pan-India market for agricultural commodities, will
    cumulatively not only minimize the price volatility, but also
    disincentivize hoarding by traders—a known element behind every
    price volatility.

    In this regard, there are a few who, of course, advocate that multi-
    brand retailing be thrown open to foreign investment so that requisite
    technology can flow into food-production infrastructure. There is also a
    counterargument: this can be aimed at even by domestic corporates
    that are already engaged in retailing business. Whatever be the
    argument, one thing is certain: Indian agriculture needs all-round
    modernization. What, after all, needs to be done is, both private and
    public players must chip in to make agriculture a thriving profession;
    else India will continue to reel under malnutrition, who knows how
    long.

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