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SUBCONTINENT:
Arresting Food Inflation: Directives Against Hoarding

Identifying the phenomenon of hoarding and unchecked rise in prices of fuel and power as reasons for the spiraling food inflation, the new Finance Minister, Arun Jaitley, has directed all Indian states to put effective steps in place to prevent speculative hoarding, writes Priyanka Bhardwaj.



(Above): A farmer shows fresh onions plucked from the ground. The rise in the price of onions has often played a key role in deciding the fate of governments in India’s elections.

The provincial governments should take effective steps to ensure that speculative hoarding is discouraged … The government is committed to take measures which will positively impact the GDP and result in higher growth than expected,” Finance Minister Arun Jaitley recently posted on his Facebook page.

The minister’s conclusions are based on official data that states Wholesale Price Index-based inflation in May, this year, shot up to a five-month high of 6.01 percent as compared to 5.20 percent in the previous month due to a sharp jump in food and fuel prices, all of which led to a sell-off in the financial markets and destabilization of the equilibrium.

His worries are comprehensible as in the last few years India has seen a steady increase in food inflation despite good harvests and overflowing granaries, and this turned out to be a chief reason for the total decimation of the last United Progressive Alliance, and Bharatiya Janata Party’s stupendous triumph in the recently held Lok Sabha elections.

In his maiden Parliamentary address, Prime Minister Narendra Modi reiterated his government’s resolve, “We have promised to control inflation. We are determined to achieve this target.”



(Above): India’s Agriculture Minister Radha Mohan Singh talking to media in New Delhi, May 28. [Press Information Bureau]

Lending support to Finance Minister’s conclusions is the data furnished by the Ministry of Commerce and Industry which indicates that fuel and power inflation rose to 10.53 percent in May due to a 14.21 percent and 12.28 percent year-on-year rise in diesel and petrol (gasoline) prices respectively.

As for the price of potato, fruits and milk, the 9.5 percent rise in food inflation resulted in respective increases of up to 31.44 percent, 19.40 percent and 9.57 percent.

Concerns of an aggravation in inflation loom as a poor monsoon has been predicted by the Indian Meteorological Department, and escalating tensions in Iraq have induced global fear in oil prices and a drastic drop in Indian currency.

Talking to daily buyers in the by-lanes of New Delhi, the country’s capital, one only hears of complaints of rising prices and troubles of managing food expenses that eat into more than half of a middle class family’s income.

The country’s capital has a history of skyrocketing prices of onion, a ubiquitous dietary ingredient, for which many an incumbent government was voted out of power.

During last month the price of onions and potatoes shot up by Rs.3-5 per kilogram even as officials claim no change in arrival and cost of onions and potatoes.

An implied illegal profiteering therefore justifies the government’s stance to crackdown on hoarders of vegetables and grains, particularly onions and potatoes.

As of June 22, about 532 premises have been raided and 42 traders arrested for hoarding essential commodities in violation of Essential Commodities Act, 1955 and the Legal Metrology Act, 2009 in Delhi.

It is learnt that seventy teams from the Food & Supplies Department, inspectors, legal metrology officers and police have been designated to carry out these raids under direct supervision of Delhi’s Lt. Governor Najeeb Jung.

S.S. Yadav, Commissioner of Food & Supply, New Delhi informs, “Each team was assigned a particular area and directed to not spare anyone indulging in hoarding or other malpractices to cheat consumers.”

Raids were conducted at Narela Anaj Mandi (wholesale food market), Nangloi, Sultanpuri, Burari, Azadpur Mandi, Ashok Vihar, Timarpur, Shakur Basti, Shalimar Bagh, Okhla Mandi, Mehrauli, Khanpur, Badarpur, Chhatarpur, Najafgarh, Kapashera, Palam, Mandawali, Gazipur, Shahdara, Brahampuri, Usmanpur, Keshopur Mandi, Madipur, Daryaganj, Minto Road, RK Puram, Sarojini Nagar, Okhla, Jamia Nagar, Bhogal, Lajpat Nagar.

Jung has also issued a separate slew of measures to curb the hike of onion prices and government sources say that the Agriculture Produce Marketing Committee will soon come up with its rate lists to spread awareness.

Incoming reports suggest that other state governments too are stepping up the plate against hoarders by deputing sub-divisional officials to record daily arrivals of agriculture produce and sale and purchase of agriculture produce, and prepare list of wholesale and retail prices.



(Above): Minister for Finance, Corporate Affairs and Defense, Arun Jaitley at a pre-Budget consultation with the representatives of Agriculture Sector in connection with the forthcoming Union Budget 2014-15, in New Delhi, June 5. [Press Information Bureau]

Union Agriculture Minister Radha Mohan Singh has said that the government aims to prioritize improvement of agriculture in every way and this can be seen from restrictions being placed on export of certain essential farm products and in coming months new livestock, soil irrigation and crop insurance schemes will be effected, details of which will be made public during the Budget session in second week of July.

However, a clear picture can be discerned from a study of other research reports as well.

A recent report by Crisil mentions, “The last decade saw food inflation averaging at 8.1 percent, and over 10 percent in recent times … In the last ten years agricultural output touched 3.6 percent per year in comparison to 2.9 percent per year in the earlier decade.”

A set of figures have also been provided by the Food Corporation of India for food grain stock every month, comprising of rice, wheat, un-milled paddy and coarse grains, at 74.8 million tons as of June 1, 2014 as against 36.4 million tons in June 2008.

Majority of the analysts agree that a juxtaposition of these figures reveal an unchecked hoarding by Food Corporation of India which procures and collects far more subsidized grain than required and thus contributed to a shortage in supply of grains in the open market which in turn leads to spiraling of food prices.

While the government discharges its duty to maintain strategic reserves for distribution during exigencies (such as drought, floods, etc.), it is also important that it does not procure beyond a certain buffer stock limit.

The research analysis report titled “Buffer Stocking Policy in Wake of NFSB (National Food Security Bill)”of May 2013 by Ashok Gulati and Surbhi Jain of the Commission for Agricultural Costs and Prices has set this limit at a range of 41 to 47 million tons. But in realty Food Corporation of India’s food grain level is far higher than this estimate and only results in an overflowing granary and because of an inadequate storage infrastructure it results in huge wastage and rotting of grains (between 2005 and 2013, 194,000 tons of grains were wasted as per the Crisil report).



(Above): A laborer carries a sack of food grains for storage at an FCI storage facility. [Food Corporation of India]

To this one may add the unnecessary government expenditure on purchase of the extra grain that the Commission for Agricultural Costs and Prices report fixes at Rs. 700 billion - 920 billion for every 30-40 million tons of excess stock.

While buying grains from farmers the government leans towards populist tendencies and thereby raises the Minimum Support Price every year. In 2005-2006, the minimum support price for common paddy (rice) was Rs. 570 per quintal and by 2013-2014 it touched Rs. 1,310 per quintal. Similarly the minimum support price for wheat rose by 14 percent per year between 2005-06 and 2013-14.

The Comptroller and Auditor General’s report quantifies the inflation in price of grains as lesser amounts reached the open markets due to large-scale procurements by the government.

The CAG report says that while in 2006-2007, 63.3 million tons of rice landed in the open market, the amount fell to 48.3 million tons by 2011-2012, indicating a drop by 23.6 percent despite a huge increase in demand. In the same manner 61.4 million tons of wheat reached the open market in 2010-11 as compared to 62.1 million tons in 2006-2007.

Speaking of the anti-inflationary measures undertaken by the government, the Confederation of Indian Industries has welcomed these initiatives but also put in its request for commitment on development of advanced supply chains, acceleration of investment in agri-infrastructure and encouragement to foreign direct investments in retail.

The government’s agenda for broad economic reform in coal sector, attracting private investment in defense industry and fast approval to labor intensive manufacturing industries are also seen to be steps in this direction and which would buttress efforts by the Reserve Bank of India that has recently lowered India’s growth-stifling high interest rates that depend on controlling consumer prices.

However, it appears the opposition and pundits will not allow the government to breathe easy as they have joined ranks to pillory it for not reining in last May’s inflation and backtracking from lofty pre-poll promises of “achche din” (good days) by resorting to traditional administration of “anti-populist-bitter-pills” like raising rail fares, etc. to curb deficits.


Priyanka Bhardwaj is a reporter with Siliconeer. She is based in New Delhi.

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SUBCONTINENT
Arresting Food Inflation:
Directives Against Hoarding

Finance Minister Arun Jaitley has directed all Indian states to put effective steps in place to prevent hoarding in order to curb food inflation, writes Priyanka Bhardwaj.


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