Modi govt must wake up to impending food crisis in country

IMF Chief Kristalina Georgieva has sounded a global warning that there would be “people on the street” unless steps are taken to protect the most vulnerable sections of the society. “An explosion of food and energy prices for those that are better off in inconvenience – for the poor people, tragedy,” she said. 

To prevent such a situation in India, the Modi government will have to make a tightrope walk between fiscal and monetary policies. 

The inflation in India has been largely driven by the rising food prices which directly affect the poor and the vulnerable. Since the lockdown in 2020, India has been distributing free food grains to support 80 crore of the 140 crore population of the country.

If the scheme is not extended beyond September 30, 2022, these people will undergo unimaginable suffering, because the food prices have become unaffordable for a majority of them. 

Fiscal policy is decided by the Government of India, while the monetary policy is decided by the Reserve Bank of India (RBI). For the Union government, liberal fiscal policy is an option, but for the RBI, there would be no option left but to increase the interest rate in the present circumstances of inflationary pressure. 

Such a condition would increase the demand and push up the prices again, and further tightening of the fiscal and monetary policies would then be required. It would be a vicious cycle and the Modi government needs to rescue the economy and the people by restoring the right conditions for growth, of which price stability is a critical condition.

Higher interest rate would increase the cost of investment and input which would further push the prices up. 

The data available on the Department of Consumer Affairs portal shows that the all-India daily average retail prices of rice were higher by 9.03 per cent, wheat by 14.39 per cent, and wheat flour by 17.87 per cent compared to that a year ago. The all-India daily average wholesale prices of rice were higher by 10.16 per cent, wheat by 15.43 per cent, and wheat flour by 20.65 per cent.

Rice is a staple food in the entire country, and the Ministry of Agriculture has just estimated the kharif rice output at 104.99 million tonnes, which is lower than 111.6 MT (6 per cent less) compared to the production in the last kharif season.

The Ministry has admitted that the domestic prices of rice are showing an “increasing trend” and may “continue to increase” at least for a year until the next kharif season. 

The dip in kharif production is significant since rice is being distributed under the National Food Security Act. Procuring sufficient quantity of rice for the Public Distribution System of the country will pose new difficulties.

It should be noted that India recently banned the export of rice to keep the domestic prices in check, which did not happen. Domestic prices of rice continue to rise. 

The Ministry has said that the government wants to support the ethanol-blending programme that saves costly oil imports and to help the animal husbandry and poultry sector by reducing the cost of animal feed which has a bearing on the prices of milk, meat, and eggs. 

However, the export of broken rice has increased by more than 43 times in the past four years from just 0.51 LMT in 2019 to 21.31 LMT during April-August 2022. It has impacted the domestic prices of broken rice from Rs 16 per kg to Rs 22 per kg in the open market. 

It adversely increased the input cost for poultry and animal husbandry by 60-65 per cent, which in turn increased the prices of meat, egg, and milk, thereby contributing to the food inflation.

The Modi government has very narrow options in this regard. It can’t divert grains to industries for ethanol production when a large population in the nation needs free food grains because they cannot afford to purchase them at market price, but it also needs to encourage ethanol production to keep oil prices in control and save foreign exchange. 

The Modi government seems to have no clue on how to tackle the ticklish situation. It is simply following the policy of wait and watch for now, though inflation is hovering near 7 per cent ,which is an eight-year high, and much higher at the tolerable limit of RBI range of 4-6 per cent. 

The RBI finds it difficult to reduce it to 4 per cent through its monetary policy, since it fears that aggressive rate hikes could hurt economic growth. 

Since growth and inflation have to be balanced, both the fiscal and monetary policy would need very careful consideration. However, responsible officials in both the Union government and the RBI agree on the need to bring down inflation below 6 per cent. 

Despite an accommodative stance with growth bias, the RBI could not prevent retail inflation from rising to 7.79 per cent, the highest in eight years, in May, which was driven by a steep hike in food prices. The inflation remained high thereafter and even in August, it was above 7 per cent, again due to higher food prices. 

This puts tremendous pressure on the RBI to raise the interest rate, and within a week, on September 30, we would know about its stance since the report of the Monetary Policy Committee is due on that date.

The Modi government has tweaked its fiscal policy in recent months which included reducing taxes on gasoline and diesel and imposing curbs on the export of rice, sugar etc, but this too failed to bring the inflation below 7 per cent. 

With economic growth of 13.5 per cent in the first quarter of 2022-23, the Modi government has resorted to the propaganda of good governance to soothe people’s strained sentiments, but it masks the ground reality of millions of people suffering from impoverishment.

The fact also remains that it is below the RBI’s forecast of 16.2 per cent for the period, threatening the overall growth projection of 7.5 per cent for the full year. Now, the latest international estimates forecast it to be only 7 per cent due to elevated inflation and tighter monetary conditions. 

India is certainly undergoing a severe 'cost of living crisis' and the poor and vulnerable sections of the society are being shaken by the 'food-shock'. It is imperative for the Modi government to find out ways and means to overcome the crisis before it blows up in its face. 

(IPA Service)

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