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High rise in prices nibble into food budget

Discussion in 'World Economy' started by Naren1987, Sep 3, 2011.

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  1. Naren1987

    Naren1987 Captain SENIOR MEMBER

    May 30, 2010
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    With food inflation continuing to remain stubbornly high, economists are of the view that the removal of supply-side bottlenecks, including marketing reforms for horticultural produce, rather than the RBI's tight money policy the need of the hour.

    FICCI secretary general Rajiv Kumar said fruits and vegetables should be removed from the purview of the Agricultural Produce and Marketing Act (APMC) so that more people can trade in these goods and enhanced competition would bring down prices.

    He pointed out that the entire apple production of Himachal Pradesh was handled by a dozen-odd traders in the Azadpur Mandi, which gives them a monopoly in the market that results in lower prices to farmers and very high prices for consumers.

    Similarly, if anyone buys a truck-full of onions from Gujarat and brings it to Delhi the only place he can sell it is the wholesale mandi in Azadpur, as the Delhi government does not allow the direct sale of the produce.

    These traders then tend to hike prices on the slightest pretext and take advantage of the inflationary expectations that have got built into the economy.

    There are also multiple layers of taxes in the states and the cost of the onions purchased in Gujarat shoots up immediately by much as 20 to 25 per cent without any value addition because of the high state levies that have to be paid.

    FICCI has presented a proposal to the government to give national licences for the free movement of air-conditioned "green trucks" which can carry fruits and vegetables over long distances without being stopped and harassed at various checkpoints.

    Kumar said monetary policy cannot control food inflation and it was also unfair to force people to reduce the consumption of nutritious food like milk, eggs and fruits by reducing their purchasing power. The production and availability of these goods should be increased instead, he added.

    Economist Ashok Desai is of the view that the production of milk, eggs and poultry has not been able to meet the increasing demand, as the growth in farm output has been low, as a result of which fodder and maize used to make poultry feed are not available in sufficient quantities. Apart from this, productivity of Indian milch animals needs to be increased by improving the breed of the cattle.

    Planning commission principal adviser Pronab Sen said monetary policy is not the answer to the current inflationary spiral as it works in an indirect way and tends to choke growth.

    According to planning commission member Saumitra Chaudhary, there is a dire need to modernise the agricultural marketing system in the country. Corporates and big retail chains need to come in for a proper system of grading. Also, cold chain storage and marketing will enable the farmer to get a better price for his produce while the consumer can get quality vegetables and fruits at affordable price, he said.

    Chaudhary pointed out that currently the gap between the farm gate price and the retail market is huge. A farmer merely gets Rs. 2 to 5 a kg for his vegetables which are being sold at Rs. 35 to 40 per kg at the retail level.

    The mandi system does not provide for any investment being made in infrastructure such as cold storages and as much as 30 to 40 per cent of the perishable agricultural produce, such as fruits and vegetables, rot in the country and the accompanying shortages lead to higher prices.

    The subcommittee of the Prime Minister's trade and industrial council, which includes industrialists Adi Godrej, Mukesh Ambani and former HUL chief MS Banga, has submitted a recommendation to the ministry of agriculture for giving national licences to corporates to start their own mandis to buy agricultural produce.

    These mandis are expected to enable the corporates to buy directly from the farmers if they offer a better price and will provide an alternative to the government-regulated mandis that function under the APMC.

    "However, the problem is that agriculture is a state subject. Since it is an issue involving the federal structure of the Constitution, the Centre has to tread carefully," a senior official told Mail Today.

    High rise in prices nibble into food budget : North: India Today
  2. illuminati

    illuminati Lieutenant FULL MEMBER

    Aug 30, 2011
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    India's inflation is completely beyond the central monetary authority's control because of the country's informal market conditions and it's under-ground economy. I bet most of these smaller giffen good vendors do not even use banks... so how the hell would increasing bank interest rates somehow affect the prices of necessary goods. It'll just affect the formal corporates, not these small-time vendors, which are what that really affects giffen good prices in an economy such as India.

    Even in China, it's not possible. You can't use Keynessian economics as a one-fit all model, I doubt something that works in China or something that works in the US will work in India or any other country. They need smart economists, people like Amartrya Sen to develop mathematical models or proper growth models especially for a big country like India. I don't think this entire growth model will work for either CHina or India or Africa in the long run - ultimately, given the inflation potential in mixed economies (as India is a socialist country, given it's heavy subsidies) and how rapid growth may be co-related with rapid inflation in growing economies... in the end, poverty index or measureable variables that demonstrate ground realities tend to get mixed up, only to catch up a little later.

    So, you grow... and then you lose that growth since, thanks to the underground economy that may not be controlled, value tends to match increased demand with limited supplies that cost more... especially if these vendors choose to keep supplies low to maximize profits. And China could stump them and produce more... in India, who regulates produce...? I think you could easily apply the price mechanism in this, but in India's case, even that is not an accurate model, despite it's simplicity...

    Complicated stuff, I hope that Mr. Singh is still in his prime (I have severe doubts because I have never heard him speak robustly before, he's just too mellow for my likings, I prefer someone in the mould of Tim Sebastian or, for Indian equivalence, Karan Thapar) to understand this anomaly and Mr. Mukherji, who says that the fundamentals are strong (reminds me of McCain to be honest) really know where it's all headed...

    The entire government doesn't have a major economist (a team rather)... apart from Mr. Singh, who else (apart from Mr. Ahluwalia as well). They really need a government cabinet made up of IIMs et al fast.
    Last edited: Sep 4, 2011
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