Mar 5, 2010

Remove Sharad Pawar, and food inflation will ease

I have got tired of answering questions about food inflation. So when a TV journo called me yesterday inviting me to a show on food inflation, I apologised. "What new can I say on food price spiral," I told him.

"No, Sir", he replied "We know you were alone when the entire class of economists were trying to pass the blame on supply-demand constraint. They were proved wrong. Whatever you said about food prices, and the failure of the government to control it, has come out to be true. Please come on our show and tell us what will happen this year." 

Anyway, to cut the long story short, I accepted the invite. 

To my pleasant surprise, when the TV channel played the introductory package wherein we heard Sushma Swaraj speaking in Parliament, the young anchor told me that more than six months prior to her I had said almost the same on this TV show. The anchor in fact reeled out some of the prescriptions that I had doled out for curbing the price rise.

I was amazed. I never expected a TV anchor to be so keenly following a story. It only tells us that not all TV hosts are dumb. Not only this girl, I find most of the anchors quite sharp and bright. Of course, I am not comparing them with the likes of Karan Thapar, Rajdeep Sardesai, Pankaj Pachauri and Hindol Sengupta, but I must say that over time most TV channels have begun to look for real good anchors.

Nevertheless, returning back to food inflation, I was asked to respond to the UPA government's latest claim that food prices will ease by April. Although food inflation has risen to 17.87 per cent for the week ending Feb 20, chief economic advisor Kaushik Basu has been quoted as saying that the food price have come down, and the high inflation is because of the base effect. Analysts say that the April harvest would be crucial, and the pressure on inflation will ease after the new crop flows into the markets. 

I don't think food inflation will ebb after April. In the days to come we will first see the Budget decision to hike duties on fuel impacting prices, an indication of which is coming from Anand, Gujarat, where the milk cooperatives are warning of a rise in milk prices. In the past few days, the price of 500 gm pack of curd in Mother Dairy has already gone up by Rs 2, and that of cheese by Rs 4. 

Once this price rise stabilises, the food prices will be on a continuous spiral pending the hike in urea prices by 10 per cent, which will come into effect from April 1. 

Fertiliser manufacturers have promised not to raise the price of other fertilisers besides urea in Kharif 2010, but after the monsoon season is over, it will be free for all. That is where the fertiliser manufacturers are waiting to make a killing. This will have a cascading effect on food prices. In short, we must learn to live with higher food prices. 

Once again, I was asked as to what needs to done. I am spelling out the corrective steps that needs to be undertaken immediately: 

1. Any strong government, if it wasn't faced with the compulsions of coalition politics, would have removed the Food & Agriculture Minister by now. The Congress cannot wait any longer. It must get rid of Sharad Pawar, and you will see the prices coming down.  

2. We have no reason to complain if we believe in market economy. This is what the markets do when left on its own. The markets need a danda. And that is what the government is reluctant to do because it will go against the norms of a free economy. The government needs to regulate the markets, even if it means going against the flawed thinking that markets correct itself. 

3. Hand over the sugar swindle (or call it mismanagement) to the Central Bureau of Investigation (CBI). There is no reason why the sugar stocks continued to climb in the stockmarket at a time when the industry claimed it was running in losses. It was all designed. 

4. Go for a nationwide crackdown against hoarders, not only the wholesale trade but also the retailers. Simultaneously, put a full stop on future trading in agricultural commodities.

5. Curb the big retail. They are also responsible for the price hike. 

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