Delayed seeds of reform

Sep 03 2014, 00:10 IST
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SummaryControlling food inflation seems to have pre-occupied the attention of the Modi government, at least for now, and it has succeeded in minimising the damage despite a poor monsoon.

The Modi government had to hit the ground running as far as food and agriculture is concerned. With delayed and deficient rains in June and the spectre of El Nino, drought was looming large. Food inflation was stubbornly stuck at double-digits and seemed to be getting out of hand and onion prices made headlines. The Cabinet met thrice to discuss food inflation control and took some major decisions.

First, it decided to liquidate 15 million tonnes (mt) of grains—5 mt of rice and 10 mt of wheat—from FCI stocks. This helped contain inflationary expectations. As the off-loading of these stocks accelerates, cereal price inflation will see moderation.

Second, the minimum export price (MEP) of onions was raised to restrict export flow; some import orders were placed for onions, and the government announced that it would import even potatoes, if need be, to curb inflationary speculation. The government also advised the state governments to de-list fruits and vegetables from the APMC Act, and include onions and potatoes under the Essential Commodities Act. In places such as Delhi traders were also ‘raided’ for ‘hoarding’ of onions.

What are the results? Onion retail prices have been contained within R30/kg in most places. That is a major success, despite drought-like conditions in several parts of the country. The litmus test, however, will come in October when onion stocks from rabi crop almost exhaust, and kharif harvest may be delayed. If the Modi government can still contain onion prices within R30/kg in October, that would deserve kudos! This is not to suggest that food inflation has been brought down to comfortable levels, but at least it has been contained from worsening, especially when rains are playing truant.

Third, the Modi government has resisted the temptation to raise MSP of wheat and rice (paddy) by 20-25%, as was demanded by one of its strong allies, Akali Dal. It has, instead, accepted the recommendations of CACP, which suggested only R50/quintal increase in MSP of wheat and paddy, that works to less than 5%. This was very rational given the large grain stocks with FCI.

Fourth, the food ministry shot off a letter to those states that give bonus on top of MSP, saying that FCI would not accept all the procurement done by those states. This is a terse message to restrict the open-ended procurement from states that distort market prices and drive away the private sector. Also, the food ministry

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