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Wednesday 9 November 2011

The disturbing truth about rising food prices

The disturbing truth about rising food prices
Nilotpal Basu
There is a complete disconnect between soaring prices and the government's response. The most common refrain of governments past and present has been to attribute the incidence of extremely steep price situation, particularly of those commodities regarded as essential, to the global pattern. However, a cursory look at the global food price situation would reveal that India compares very adversely as compared to most other countries. The primary reason is that the world today is in the grip of a much deeper recession than us.
The government also has tried to gloss over the reality and tried to argue a demand-supply mismatch to trivialise the problem. Of course, they have also tried another round of similar assurance that by the yearend, prices would come under control. The repeated nature of such unfounded promises is adding up to the common man's sense of irritation and disgust.
More importantly, this supply-demand mismatch further falsifies the ground reality. Our farmers are expressing themselves with great anguish over the crashing prices that their produce is fetching in the mandis. Standing and harvested crops are being set on fire. Farmers in different parts of the country say they will not sow the kharif crop. And one cannot blame them for these expressions of despair. Their crop is not reaching prices that would actually cover their costs. With the sharp rise in fertilizer prices, costs have gone up so much and it is actually rendering losses with the kind of prices they are commanding in the market. Therefore, far from what the government claims, the reality is that the primary producers are not being able to sell their produce. So if there is a glut in supply, it is not because of a glut in production but because of want of an appropriate mechanism that can fetch a fair price and at the same time, increase the flow of supply. The absence of such a mechanism is leading to a situation where the current level of un-viability of petty agricultural production may lead to a major reduction in the farming activity in the coming kharif season.
The absence of the appropriate mechanism is actually not a chance incidence. The withdrawal of appropriate public agency intervention in procurement and credit delivery is leading to the inroads of private lenders and big time players in the agricultural commodity market. The reduction of public stocks and stocks coming increasingly under big private players' control is correspondingly increasing speculative activity. The government's refusal to disallow forward and future trading in the agricultural commodity market is amplifying the impact of speculation in the rising food prices. This is at the cost of both the primary producers and the urban consumers.
However, two other factors adversely affecting the food price situation show that the government is directly responsible for the present state of affairs. Its refusal to revamp the public distribution system — and going in the reverse direction to completely dismantle that — is leading to an unprecedented level of exclusion of poor people from accessing food at affordable prices. This is done by trying to artificially manipulate the number of poor and continue with the targeted system, which is absolutely falsifying the prevailing reality. On the other hand, allowing the free play of big private players in the countryside also allows only the relatively bigger players to hold on to their produce and not indulge in distress sale. This is pushing the smaller and marginal peasantry into a state of complete helplessness apart from excluding a large section of poor from affordable food.
The other question is the impact of the increase in fuel price. In the last 12 months, there have been 11 fuel price hikes. The government tried to explain this as a consequence of increase in international crude oil prices. That this is a sham is now increasingly clear because the latest hike has nothing to do with international prices. In fact, international prices are actually lower now. A major component of the increased price is being actually collected by the government as taxes. At a point in time when taxes on corporates are waived and direct taxes are reduced, why should the government increase indirect taxes including those on petro products to raise its revenue?
A cursory look at the balance sheets of public sector oil companies will reveal that year after year, they are making huge profits and passing them on to the government in the form of tax and dividends. An RTI query will reveal that even the subsidy that the government is claiming to give the oil marketing companies is actually far less than the overall revenue that it collects on account of tax and dividends from the sector as a whole and the oil companies as well.
Together with the fuel prices, the abnormal rise in fertilizer prices are also linked to the benchmarking of this important input to the international crude oil prices. Therefore, it is clear that the horrific price situation is a direct outcome of the pricing and the taxation policy of the government in the hydrocarbon sector.
The high prices are benefiting the government — increased tax revenue — the big private players in petroleum and agriculture and the burden is brought upon the majority of the people, most of whom are poor. The poor whose expenditure basket is disproportionately burdened because of food being the most major item, they are at a point of explosion.
The writer is a member of the central committee, CPI(M)

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