The Hindu Business Line : Inflation buster

Feeling the heat of inflation concerns across the country — with Opposition parties and even political allies breathing down its neck — the Government, after a marathon meeting of the Cabinet Committee on Prices, has announced a flurry of trade, tariff and administrative measures. Among the important decisions is the reduction of basic customs duty on crude edible oils to zero, and on refined oils and vanaspati to 7.5 per cent. Maize imports under tariff rate q uota (5 lakh tonnes) are allowed at zero duty, while non-basmati rice export stands completely banned. State governments are free to invoke the Essential Commodities Act to check hoarding of essential supplies. Together they ought to produce a bludgeoning effect on prices; but verily these could be the Government’s brahmastra. There may be no other potent quick-fixes available. The decisions have come at a time when global prices of major food products such as grains and edible oils are helpfully coming off their highs, following generally improved production prospects in the northern hemisphere for 2008-09. Forward prices of wheat, corn, pulses, soyabean and palm oil have recently eased, and could fall further over the next several weeks, assuming the weather stays friendly. This will coincide with the harvest of our own rabi crop (wheat, oilseeds, pulses and rice). Agri-commodity markets are sure to undergo a sentiment change in the face of bearish factors, both domestic and international. Prices of major commodities are set to decline. For instance, edible oil prices can potentially fall by Rs 3,500-10,000 a tonne at the wholesale level. There is a case for abolition of State or local levies such as VAT, octroi and turnover tax on essential foods as also mandi and other taxes on grains. However, the export ban on rice and pulses and the duty-free import of maize are symbolic, with little real impact on domestic prices.

While prices of primary food articles are poised to ease, energy products and metals are expected to stay strong, on supply-side concerns and geopolitical worries. In other words, any price relief would be restricted to food articles. Yet, it will help calm frayed tempers as food accounts for 45-55 per cent of Indian household expenditure. Leakages notwithstanding, the public distribution system is functional and needs to be strengthened, universalised and a few more essential commodities such as edible oil and pulses added. Economists have argued in favour of food coupons or even cash transfers to the poor. It is time the government seriously examined the feasibility and logistics of successfully implementing such welfare schemes and delivering on its promise. Lastly, to meet the burgeoning food demand, there is simply no alternative to raising domestic production of a range of major food crops through higher productivity.

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