Be prepared to tackle spiralling food prices
By The New Indian Express
28th July 2012 12:52 AM
Hopes of reviving wilting crops have receded further and lakhs of hectares will remain fallow in western and southern India as the erratic monsoon is forecast to weaken further in August, sparking fears that prices of pulses and edible oils may shoot up alarmingly. Waking up belatedly to tackle the situation, the Union governments empowered group of ministers on drought is scheduled to meet next week for the first time since 2009, which saw the driest monsoon in nearly four decades. India’s problem has been compounded by adverse weather in other parts of the world, particularly the United States, which is a major player in the global market for farm products and is reeling under its worst drought in half a century. This is bound to lead to higher food prices in the international market.
While India has ample stock of cereals such as rice and wheat and their prices can be capped if the government intervenes effectively in the market, the biggest worry is pulses and oilseeds, where we are increasingly dependent on imports. Prices of these have been rising in the forward commodity markets, as traders anticipate inflation. Poor output, higher imports and rising prices of pulses and oilseeds could have two effects on the macro economy — higher imports and further inflationary pressure.
India has already had very high consumer price inflation in recent years, and inflationary expectations have soared, leading to wage pressures in the economy as families try to protect their purchasing power. Since food inflation has been persistent rather than volatile and food and fuel account for two-third of weightage in inflation indices, the situation needs to be watched carefully. As an immediate measure the Centre must tell state governments to tone up their public distribution system to face the challenge. It must also revisit decisions to open exports of rice, corn, wheat and sugar and seriously consider imposing a ban on future trading in selected farm commodities that have witnessed extreme price movements.
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