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Inflation at its Highest making way to food crisis

"The pinch of spiking price rise is not only affecting the common man of India, but also threatens the governments and impacts the total political system in the country. Starting from the leaders to the experts and the common man, everybody looks for a short way out of the crisis.."

T Prasad : August 3, 2008

Recently, inflation rate touched 11.91 per cent mark. It’s a record as for the first time in 13 years that inflation has touched this height and, if we listen to economists, further records are yet to be broken. But the good news is that the rate of inflation has eased up a little bit and dropped down to 11.89%, by the week that ended on July 12. Still the figure is at more than twice compared to last year's figure of 4.76%. It seems that UPA’s win over the trust vote has not only relieved the government, it also brought some good news in terms of receding inflation rate and rising sensex points. Prices of some essential commodities like food-grain, edible oils, vegetables and dairy products are more or less stabilizing. But what led to such a soaring inflation as quickly as it happened in recent past?

A number of causes can be associated with this record making trend of rising inflation and decline in the purchasing capacity of common men world wide. Some of the factors are very usual like droughts, floods and other natural calamities, which affect agriculture to a great extent in India.

Agriculture – the most vital but neglected area

Agricultural production has fallen drastically in developing as well as developed countries over the past years. And in the global perspective, contribution of natural calamities in decreasing production is not that dangerous as the threat to agricultural economy has been experienced due to uncontrolled use of agricultural land in non-agricultural purposes and excessive use of inorganic fertilizers for a better yield to recover the shortfall.

Bashed by rising international crude oil prices, many developed nations are encouraging farmers, who were once producing food crop, to cultivate those crops which can be used in producing bio-fuel. Basic agricultural produce like corn and sugarcane are more used to produce bio-fuel, thus creating a shortage of these items in world food market. Meanwhile, the circumference of middle income group, in Asian countries, is expanding as a result of Liberalization. Liberalization has helped in generating more jobs in the developing economies and providing better income opportunities to the middle class families. This new equation of employment and income has resulted in an increasing demand for nutritious food, staple food and diary products.

Here we can not overlook another important factor leading to shortage of food. It’s the evils of urbanization. No doubt, urbanization is quite an obvious phenomenon of socio-economic development and India has taken quite good steps in developing its cities and towns to welcome foreign investors, corporate houses, employers and manufacturers to spearhead the economic development. But diversion of agricultural land for industrial, commercial and residential purposes are posing serious threats to agriculture. The farmer, who is now growing rice in his fields, may become an industrial labourer in a steel factory and make his pocket little heavier, but the lack of local produces in the market would force the market prices go high beyond his wallet.

Excited with the boom in manufacturing and service sectors, India has been neglecting agriculture since the eighties of last century although around 60 percent of India's population makes a livelihood out of it and still its contribution to India's GDP is only around 20 percent. The major contributor to the GDP is the service sector hovering around 55 percent and the rest comes from the manufacturing and other sectors.

Another factor of price rise is our own great-emotion-panic. If we hear that price of a particular product is going to rise in future, our immediate response will be to buy more of that product and hoard them for the future. Mostly greedy and irresponsible traders are into such practice which creates artificial scarcity of commodities in the market.

Along with crop failure in some countries, decreasing value of the US dollar and rising crude oil prices have grouped together to increase commodity prices.

>>> Scroll down to read rest of the Story


Way Out

The pinch of spiking price rise is not only affecting the common man of India, but also threatens the governments and impacts the total political system in the country. Starting from the leaders to the experts and the common man, everybody looks for a short way out of the crisis. But short way is not going to work in resolving the crisis. The government and policy makers should explore the possibilities and derive some long term plans that would stabilise the price band of essential commodities and help dealing effectively with the food crisis.

As some quick measures, however, Indian government has banned export of non-basmati rice and some other commodities to cater to the domestic market for inland consumption. This move may help in meeting the domestic demand but it will further create a shortage in the world market and will discourage producers of the products, as they might not be able to generate equal amount of income, as they were earning from export, by selling their produce in local market. The Reserve Bank of India (RBI) is also trying to absorb excess liquidity in the economy by increasing the CRR and REPO rate which has obviously brought down the pace of rise in inflation.

Possible measures for long-term solution

The satisfactory long-term solution to the international food crisis is to increase agricultural productivity. It’s the demand of the time that Indian authorities should look forward for another Green Revolution in India and it should be implemented as early as possible, as Indian food stock may dry out in a decade or two. Investments in mechanisation of agriculture, irrigation and mass awareness is required to get a better result in future. In the absence of a good irrigation system, most farming activities in India depend on usual monsoon which betrays many a times. Still, the four-month monsoon season plays a decisive role in determining the fate of farmers and agriculture in our country.

Farmers in India are also habituated with growing single crop in a season and, hardly, one additional crop in a year. They need to be educated about mixed farming system to increase the productivity of the soil. Apart from market linkages and transport facilities, an effective chain of cold storages need to be set across the country to store agricultural produces and prevent distress sale and wastage of agricultural produces.

With the hope that a good harvest this year would do the trick, Finance Minister assured the nation that inflation would be brought under control. But uneven rainfall across the

country this time has made it difficult. Economists are anticipating that the inflation may soar up to 17 percent by the end of the year.

Government has announced many populist measures, like loan waiver and 100 days of manual labour in a year, to give some relief to the already overburden, loss bearing farmers of the country. Even after all these populist steps, it’s hard to control the shortage of food materials and rising inflation in India until the authorities stop ignoring the already neglected agriculture industry and the farmers. Planners must work involving the farmers and agriculturists in the process of policy making and derive policies that would help making farming a viable profession.

(Author is a young Financial Analyst and Issue Researcher)




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