The Cabinet Committee on Economic Affairs also approved an additional allocation of 5 million tonnes of rice for supply through the public distribution system (PDS). The extra allocation of rice the release of which would be as per the demand from states would be for the July 2014-March 2015 period or the until the National Food Security Act (NFSA) is implemented by the state concerned.
The Centre had recently asked state governments to implement the NFSA latest by October 5.
Analysts, however, discounted the efficacy of the extra grain supplies, saying a better policy would have been to offload the stocks in the open market. Higher rice stocks with Food Corporation of India and other procurement agencies create artificial scarcity in the market.
The decisions came as wholesale price inflation in essential items such as rice and onions rose significantly in the last fiscal, far exceeding a 5.97% headline inflation. Inflation in onions jumped 107.4% in the last fiscal, even on a high base of 24.6% in 2012-13, while that in potatoes hit 6.3% in 2013-14, mainly due to a favourable base of 60.45% in the previous year. Similarly, wholesale price inflation in rice surged to 16.51% in the last fiscal, compared with 12.69% a year earlier. The sharp price rise in such articles aided a rally in food inflation which hit 12.8% in the last fiscal, against 9.89% in the previous year.
Announcing the CCEA decision to put onions and potatoes under ECA ambit (a notification is due shortly), law minister Ravi Shankar Prasad said the stock holding limit on these two items will remain in effect for a year. At present, there are stock limits on pulses, edible oils and oilseeds till September 2014 and till November for rice and paddy. This decision is expected to help in the efforts being taken to tackle the problem of rising prices and also improve the availability of these commodities to the general public especially vulnerable sections, an official statement said.
Prasad said the government was taking various measures to curb the rise in onion and potato prices, which have risen in the past few weeks mostly in anticipation of deficient monsoon rains despite sufficient supply of these two commodities.
Wholesale prices of onion in Lasalgaon, the country's largest market, rose more than 70% in the last one month to Rs 17.50 per kg, driving up retail prices significantly. In Delhi's Azadpur mandi, prices have moved up 76% in the past one month. Wholesale potato prices in Delhi have also moved up by around 12% in the past one month to Rs 16.50 per kg.
The West Bengal, Delhi, Chhattisgarh, Madhya Pradesh and Tripura governments have already sought permission to impose stock limits on the two key kitchen staples.
Headline retail inflation eased from a three-month peak of 8.59% in April to 8.28% in May, although higher food prices helped drive overall wholesale price inflation to hit a five-month high of 6.01% last month. Retail food and beverage inflation eased a bit to 9.40% last month against 9.66% in April, while wholesale price food inflation rose to 9.50% in May from 8.64% a month before.
Earlier in the day, the commerce ministry hiked the minimum export price (MEP) of onion to $500 a tonne to improve domestic supply and curb exports. About a fortnight ago, the government had imposed an MEP of $300 on onion. An MEP of $450 per tonne was recently imposed on potato.
FCI allocates common variety of rice meant for above poverty line families at Rs 795 per quintal to the states while rice given to below poverty line families under targeted public distribution system is sold at Rs 565 per quintal.