I can’t recall writing on the same
topic over two consecutive columns. This is a first.
Since the last column, I have been going through the
supply and demand data on articles of food in India,
and I am now convinced that food inflation has
reached a new structural level. Despite some
cyclical movements, we will now be seeing many more
episodes of high food inflation. The prices of food
— especially vegetables, fruit, milk, eggs, fish and
meat — will plague us like never before. And the
solutions will need greater political and
administrative bandwidth and imagination than what
the present dispensation possesses.
As earlier, let me start with the data. The chart
plots Wholesale Price Index (WPI) inflation for
three broad classes of products: (i) fruit and
vegetables, (ii) milk, and (iii) eggs, fish and
meat. These account for a sizeable chunk of a
family’s food consumption basket, in urban as well
as rural India. More significantly, across a large
cross section of the population, these are items on
which expenditure rises at rates faster than
disposable income. As families get better off, they
spend proportionately more on fruit, veggies, milk
and the like. This is important because the demand
for these items are rising phenomenally, while the
supply isn’t.
As of December 2010, fruit and vegetable inflation
was running at 22.8 per cent compared to a year
earlier; milk was at 18.2 per cent; and inflation on
account of eggs, fish and meat stood at 19.2 per
cent. To be sure, vegetables spiked in December
thanks to the onion effect. Not so fruit. From
December 2009, fruit inflation has been reigning at
double-digits, peaking at 32.4 per cent in July
2010. Milk inflation has been continuously in
double-digits since March 2009, or 22 months on a
trot; and for 12 successive months it ruled above 20
per cent.
To my mind, there is no doubt that India is, and
will be, facing higher food inflation than earlier,
and will do so over long periods of time. That is
the obvious outcome when a rapidly burgeoning middle
class across urban and rural India faces the worst
supply chain in the country. We have more
rent-seeking intermediaries in the food chain than
warranted by any notion of sanity. More fruit and
vegetables rot between the fields and the consumer
than any country that postures as a 9 per cent GDP
growth economic superpower. Every field-to-mouth
supply chain in India is riddled with laws,
regulations and procedures and that are antiquated
and ridiculous. The food supply chain is not about
efficiently transporting food to consumers at
affordable prices, but about lining the pockets of
various useless intermediaries. Moreover, since the
green revolution of four and a half decades ago,
there has been no significant long term improvement
in agricultural productivity — be it in cereals,
oilseeds, vegetable or fruit cultivation. If
anything, untrammelled use of subsidised fertiliser
and pesticides, coupled with excess water drawn at
zero power tariffs, have reduced our ground water
and leached the soil.
Consider a simple fact. We are a nation where
services grow at over 10 per cent per year; where
industry has started growing at double-digits; but
where agriculture averages a growth of 2 per cent.
Add to this a ‘protect the farmer’ policy framework
where food imports are frowned upon — to be
sporadically undertaken only during crises. Why
should we not expect long periods of double-digit
food inflation?
There is a solution. It involves eliminating the
hundreds of restrictions on the food supply chain,
and letting corporations get into managing the
process; seriously investing in science and
agricultural extension; and opening up agricultural
imports. Can the present governments execute these,
both at the state and the centre? You know the
answer. Thus the gloom.
Published: Business World, January 2011
