Food Price Inflation – WPI at 15.58% – Subsidy PDS

30 November, 2009 at 12:00 3 comments

In response to “Food Prices Scale High at 15.58%” in DC on 27-November-2009 (full article after fold), I wanted to do something but yet again, Subhani beat me to it through this nice cartoon depicting the situation of a poor family sitting for a meal…

Food prices kept their upward trend hitting the common man hard. Food inflation rose to 15.58% for the second week of November with potato prices rising by 111% As compared to last year the prices of pulses were up by 35.60%, wheat by 12.53%, cereals by 13.04% and rice by 11.89%. Also prices of vegetables moved up by 11.96%, onions by 27.33%, fruits by 10.97% and milk by 11.36%. On a weekly basis, products which saw a rise in their prices are urad and poultry chicken (15% each), eggs (8%), moong (6%), arhar (5%), fruits and vegetables (3%) and milk and wheat (1% each). However, the prices of barley (2%) declined. The increase in food prices is due to shortages caused partly by a weak monsoon and partly by floods in some parts of the country. Said Mr Trehan and Mrs Mathur respectively –

    In a country where even a simple vegetable like potato has become so expensive, how can one expect to have three meals a day. Survival has become really tough. How frugal can one become?

    One has to think twice even for grocery shopping. Everything has become out of reach. Be it milk, vegetables or pulses. And worst, public transport has also gone so expensive. How can we honestly manage?

    Inflation for all commodities more than doubled to 1.34% for the month of October from 0.50% in September due to costlier minerals and fuels, as per data released earlier. The finance minister, Pranab Mukherjee, said on Thursday that government is very deeply concerned about rising prices and will take all fiscal and monetary measures to contain it. Arjun Sengupta in his “Fair Food Deal for All” in DC on 30-November-2009 comments that it is high time that the government initiates a universal public distribution system (PDS) covering at least the essential commodities because the bulk of the population, about 70%, remains poor with their dire struggle for minimal livelihood –

    About 350-million people remain below poverty line (BPL). The prices of essential commodities have been rising at an unprecedented rate. Not only foodgrains but vegetables like onions and potatoes are becoming costlier day by day. These affect all Indians but for the poor they are devastating as all their meagre incomes get exhausted, not meeting even a portion of the necessities. Prices of these products are no doubt largely due to shortfall in production but there are clear signs of market cornering, hoarding and price fixing. It is, however, very difficult to control speculatory tendencies by physical measures because the players are too many in the country and not just big traders and producers, even the common rehriwalla is hoarding. Unless those expectations are dampened they cannot bring down the speculation. The only way to do that is to increase supplies, if not through temporary production increase measures, then through additional imports.

      To mitigate this problem, the universal PDS would be the first important step beginning with the BPL population by supplying them with the essential commodities at cheap and affordable prices. If PDS is targeted to a limited BPL population it may also be possible to increase their supplies through market purchase of these products and sell them at subsidised prices. This would push up the open market prices somewhat further. But targeted PDS can be sustained if the government is willing to subsidise the difference between market price and issue price of commodities. Hopefully increased prices, supported by planned increase in production incentives, will raise output in a short period reducing the supplies bottleneck. But in the immediate future, the government has to be ready to bear the cost of maintaining the PDS. However, the most important requirement is organisation of the system. That cannot be achieved by market incentives or subsidies. The government has to build up a huge and efficient structure of distribution throughout the country. It has to procure, purchase or import products and reach them to different destinations of the PDS. This can be done only with the help of state governments, first to identify the BPL beneficiaries and then to have fair-price shops supply the products efficiently. National Agricultural Cooperative Marketing Federation of India Limited (NACMFoI) or similar organisations can be created for vegetable and other such products. They should build up storages and have contract farming both at home and abroad. The time has now come for all kinds of out-of-the-box thinking to meet a serious problem of economic management in the country. Indian development, if it has to follow an inclusive path, must reinvent itself so that the poor develop an equal stake in our growth process.

      Well, I agree in moral principle to Dr Sengupta (a Member of Parliament and former Economic Adviser to assassinated-good-riddance Prime Minister Indira Gandhi) but does this universal PDS not sound too communist? Why should the poor be further subsidized when already farmer markets, ration shops and pink/white cards etc. exist? Are not the high prices a result of supply-demand and greed (read, free-market capitalism) and therefore, market-based solutions are needed? Let missionaries, NGOs, social enterprises and fortune-at-BoP marketing gurus deal with solving something tangible like hunger for a change other than human rights, empowerment or whatever cause. Oh wait, they tried. And failed. And chickened out.

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      Entry filed under: BoP, Business, Citizen-Journalism, CWorks, Deesha, Economy, Energy, Health, India, Life-Theories, News-Media, Politics, Poverty, Pragati, WebXP.

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      3 Comments Add your own

      • 1. kumar  |  12 January, 2010 at 06:58

        Yeah but with these prices, the government provides Rs 3/- per day per child for the mid-day meal programme which includes one egg every day where as one egg itself costs Rs 2.5 a piece. How can the children get that?

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      • 2. sriks6711  |  13 January, 2010 at 15:46

        By PDS I meant Government should try to remove the middle-man and directly reach the producer (farmer) and consumer (poor) rather than subsidize the already inflated price dictated by traders. When it does that, 3/- is enough to feed a child because an egg at factory rate is less than 50paise. One might feel that 3/- is still less – it is no question about that – but that is when economies of scale kick in.

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      • 3. Artie Ghramm  |  17 November, 2010 at 03:26

        Just found this blog, thanks for posting. I will keep you listed in favorites

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