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Who is to blame for food inflation?
Fri, 8 Mar Pre-Open

Food inflation has become a major cause of concern for not only the common man, but also for the policy makers. While governments have been quick to blame hoarders for rising food prices in the past, it's important to note the biggest hoarder appears to be the government itself.

Under the current policy, the government sets minimum support price (MSP) for wheat and rice every year and the Food Corporation of India (FCI), or a state agency acting on its behalf, purchases rice and wheat at this price from farmers. The idea behind setting the MSP much in advance is to give the farmer some idea of how much he should expect to earn when he sells his produce a few months later. The FCI typically purchases around 15-20% of India's wheat output and 12-15% of its rice output.

But on the ground it does not work according to this policy. With an assured price, more rice and wheat lands up with the government than it distributes through the public distribution system. Also, with FCI obligated to purchase what the farmers bring in, its godowns overflow and at times the wheat and rice are dumped in the open, leading to wastage of the crop.

The UPA has failed to meet targets for containing fiscal deficit, mainly owing to huge subsidy spends. The country had a bumper crop last year. The government currently has nearly 67 million tonnes (mt) of rice and wheat in stock. Of this nearly 47 mt is excess which is worth around Rs 600 bn. Thus the government can use this excess inventory of rice and wheat to control inflation and at the same time bring down its fiscal deficit.

Investments will help plug storage infrastructure gaps. The resource-draining PDS must also cede way to cash transfers allowing needy consumers access to the market. Action on these fronts will help us fight inflation and prepare for food security. Sitting on excess foodgrain stocks accomplishes neither.

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