Inflation rekindled

INFLATION REKINDLED
Food inflation is a national and an international headline again. The
country was celebrating the regional harvest feativals over the
weekend with just a marginal decline in the inflation rates, but the
food supply is no more stable. India's embattled coalition government
failed to announce major policy decisions to tackle soaring food
prices after days of wrangling, taking only minor measures seen as
unlikely to make a major impact.
Rising food inflation is a global phenonmenen. It has sparked violence
across the Middle East and South Asia over the weekend, as
demonstrators protested the high cost of staple commodities like
sugar, rice and milk. Following good harvests over the last year,
nations bolstered their food stocks and all but ignored the precarious
nature of food production. This year’s weather events remind
policymakers that economies are one drought or one flood away from an
available food supply. Australia, Europe, North Africa, India and
Southeast Asian countries have all reported drastic food inflation
that illustrates how commodity prices and weather events affect food
prices. The outbursts ignited fears that the world is due for a repeat
of the 2008 food protests that rocked countries as far apart as Haiti,
Senegal and Bangladesh. Food prices are now at anall time high, and
are trending higher, indicating that this may be only the beginning of
the food riot problem. What's more, oil prices are also edging up,
reaching their highest level in two years.
The UPAgovernment is grappling with the problem of inflation. Today's
problem is onion prices.Last month, the discussion on inflation
focused on dal and meat. A while ago, it centred on sugar prices. Each
time we face high food prices, traders and speculators are blamed and
income tax raids are conducted. Sometimes exports are banned. At other
times, imports are permitted. Often, forward trading in the product is
banned. Either drought or excess rain is said to be the source of
inflation. Rising incomes leading to higher demand, and supply
bottlenecks in an unreformed agriculture, are seen to be ultimately
responsible. The solution needs a multi-pronged approach.
Over the last five or six years, as problems in food prices have
surfaced again and again, we have discussed the solutions endlessly.
However, very little has moved on the reform agenda. And when prices
increase sharply, instead of a commitment to reform, we hear
statements by the government on how it plans to clamp down on
speculators, or stop hoarding, or ban derivatives trading. Time has
come when we need to debate over agri-reform and fix supply
bottlenecks with improvements in cold storage chains; changes in the
mandi system; reform of the agricultural marketing system; research
support for high value crops; liberalisation of trade in agricultural
products; opening up the sector to organised retailing and FDI; moving
away from price support for cereals; and so forth.The Government which
has been endlessly anaylising the situation for the past few days now
needs to come up with some solid solutions.