Crush of Food Inflation

What is worrying about the current drought is that it has surfaced at a time when food prices are already ruling high and, at least some of those monetary values – of rice, dal (pulses), and sugar, among others – are rising steeply. And, if one were to look at the present situation in the context of the very viability of peasant agriculture being at stake, and the fact that inflation as measured by the consumer price indices turned double digit in August last year and has more or less continued thus up to the present, this when the majority of the Indian workforce’s earnings are not indexed to inflation, it can indeed get worse for the wretched of the Indian earth. But the powers-that-be seem smug and complacent. Prime Minister Manmohan Singh, in his concluding remarks at a meeting of the Planning Commission in New Delhi on 1 September, said: “We are in a very strong position to manage the consequences of the drought. Our food stocks in particular are very high. ...The NREG [National Rural Employment Guarantee] gives us a very important instrument for supporting incomes of those most in need.”

It is true that the nation’s food stocks of rice and wheat are much above their reserve levels and the foreign exchange reserves are adequate to import food in sufficient quantities. And, a drought is largely temporary, even though there can possibly be successive ones. But, when millions of people are hungry and undernourished, when food prices are market clearing and when short-term output is primarily a function of supplyside factors, a food supply shock in the midst of already high and rising prices and decelerating economic growth can compound the economy’s problems, adversely affecting the general price level and other macroeconomic variables. A decline in the agricultural sector will have an adverse effect on the industrial and services sectors and a cost-push effect on other prices. And, given that the demand for food is price and income inelastic, an abnormal rise in food prices will have a negative impact on the demand for other goods and services, and, in turn, on their output and associated employment. Hence, the government needs to overcome its smugness and complacence, especially in the context of the crisis of peasant agriculture, presence of malnutrition and a widespread need for food.