Will hit procurement and distribution

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Food inflation softens marginally to 16.81%Inflation seen at 10 pct in March: HSBCWPI up 7.31%; food inflation at 17.28%No instant solution to curb food inflation: Pranab

: Quantitative restrictions on the trading of major cereals like wheat, pulses and paddy have been imposed purportedly to check the price spiral and scope of hoarding. However, historical evidence suggests that such measures have very little impact on price. Rather, the repugnant steps have led to an inspector raj, harassment of traders and bottlenecks in the supply chain. It is often pointed out that the provisions of the Essential Commodities Act (ECA) are an anathema to economic reform and stifle the balanced growth of the distribution trade, which provides employment to a large number of people, directly and indirectly.

Under the ECA, stock limits are imposed on mills, wholesalers and retailers. These three segments are vital links in the supply chain. Over the years, they have developed expertise in market intervention for procuring, stocking and distributing commodities across the country, even the remotest areas. Market forces determine prices. Stock building normally takes place during the harvest season from crop growing areas. That is the best time for procurement.

If crops are not procured in time, there will be high wastages since farmers do not have the expertise, infrastructure or financial capability to hold on to stocks. With the imposition of quantitative restrictions on stocks, millers, wholesalers and retailers are forced to cut down their intake considerably. That would adversely affect the economics of procurement and distribution. Significantly, the one to suffer in the entire process is the consumer.

There are more than 435 commodities in the wholesale price index (WPI) basket. WPI-based inflation rose in recent times due to across-the-board price increases. Prices of primary products rose by 11.83%, manufactured items by 10.91% and fuel prices peaked at 17.99%. The upward movement of the WPI is mostly triggered by fuel prices. Primary products account for only 22% of the WPI. Foodgrains, in turn, constitute only 15% of primary products, which is a very small.