Reacting to a deficient monsoon that will affect farmers, the government is considering an open market intervention, says Shantanu Guha Ray
THOSE WHO attended the chief secretaries’ meeting in New Delhi recently — convened to take stock of the situation caused by monsoon woes across the country — were relatively surprised at the determination with which Prime Minister Manmohan Singh indicated that the government was ready to undertake open market intervention to prevent a rise in grain prices caused by deficient and delayed monsoon rains. “It seemed that he wanted to take action right there,” says a bureaucrat from the agriculture ministry who attended the meeting.
What kind of action can the government take? For one, the government usually sells foodgrains when prices rise and procures wheat and paddy from farmers. For another, sugar mills can be forced to sell a portion of their output to the government for sale through the public distribution system. Also, the government, if it wants, can ban the export of such farm commodities or place high export taxes on them in order to make their export commercially unviable.
That the crisis is serious is a fact. Agricultural activity has been adversely affected, delaying or reducing the acreage for sowing. There has been a deficit of more than six million hectares of paddy, the country’s worst-affected crop.
Rising prices of essential commodities like pulses, sugar and vegetables have caused panic among consumers. Although Singh has already gone on record expressing his satisfaction over last year’s bumper harvest and comfortable buffer stocks of foodgrains, he did caution those attending the meeting — Agriculture Minister Sharad Pawar, Cabinet Secretary K M Chandrasekhar and Agriculture Secretary T Nanda Kumar — about an inflationary impact on prices of food items because of the reduced production of kharif (summer) crops.
On July 1, India had 32.92 million tonnes of wheat and 19.61 million tonnes of rice. But the country needs to start planning for the coming rabi (winter) season so that the farm sector can increase production — to compensate for the loss in production in the kharif season.
And there are fears that despite government measures to stave off food shortages, the poor monsoon will adversely impact economic growth. Finance Minister Pranab Mukherjee agrees that nearly one quarter of the country faces a drought threat and that the area cultivated with summer crops is down by 20 percent from last year. The areas affected by drought include some of the most populous and poor states like Uttar Pradesh, Andhra Pradesh and Bihar. “About 161 districts have already been declared droughtprone,” Mukherjee told reporters in Delhi and said he was aware that a deficit in farm production will hurt rural incomes and reduce economic growth.
Data released last week showed wholesale prices fell for the eighth straight week, but prices of farm products continued to head north. The wholesale price index — the country’s main gauge of inflation — shrank 1.58 percent in the week ended July 25, but prices of food articles rose 0.8 percent from the previous week, after having risen 1.2 percent in the week ended July 18. The June-September monsoon is critical for summersown crops, including oilseeds, rice and sugarcane, as nearly 60 percent of fields are rain-fed. According to an initial estimate by the Metrological Department, annual monsoon rains are likely to be 25 percent below the 50-year average during June 1 to August 5. And if rainfall remains sporadic through September, winter crops such as wheat could also be hurt.
MONTEK SINGH Ahluwalia, deputy chairman of India’s Planning Commission, has also expressed concern and agreed that the discouraging news about summer-sown crop could put pressure on food prices. “It’s not going to be a good kharif crop. There will be some negative impact,” said Ahluwalia. Sowing of the rice crop fell about 28 percent between June 1 and July 27 to 15.6 million hectares because of the below average rainfall.
Prices of potatoes, tomatoes and pulses in Delhi have risen to such an extent that they are difficult for the common man to buy. Potatoes and onions now cost as much as Rs 20 and Rs 25 per kg respectively, while tomatoes have shot up to almost Rs 40 per kg. A kg of dal (pulses) costs Rs 65 to Rs 85. With the festive season round the corner, sugar is a bittersweet Rs 32 per kg. In each case, the hike is over 30 percent. Officials at the Agricultural Produce Marketing Committee say prices of onions could rise further because of transportation problems in bringing the crop from Maharashtra, the main producer.
Prices of potatoes, tomatoes and onions in Delhi have risen by over 30 percent
The situation is worrisome because the government has raised the fiscal deficit target to 6.8 percent of GDP (highest among emerging economies), and the Reserve Bank of India (RBI) has cut policy rates to all time lows and created high system liquidity to combat recessionary forces. The combined efforts of the RBI and the government is yet to take full effect, with credit growth still sluggish at 15.5 percent and aggregate demand yet to pick up, as seen in the decline of revenue growth of Sensex companies by just below a percentage point for the first quarter of fiscal 2009-10.
Many say the positive impact of the three fiscal stimulus measures is at risk and it could slow down an already sluggish economy. How Singh and his cabinet handle the price rise of primary articles could be the key determining factor for the economy. As the BJP found over the price of onions, a rise in cost of articles of everyday consumption usually has a direct correlation with a fall in votes polled. No wonder the prime minister is so actively concerned.