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Inflation may touch 10% by end MarchInflation up at 0.83% on higher food pricesHoarding drives food inflation by 16.32%Inflation a matter of concern: FM

: 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.

There is a growing mismatch between demand and supply of foodgrains in India. We have to augment production considerably to feed the growing population. Agriculture has not witnessed growth in excess of 4% a year. That is inadequate to meet our growing demand for food. Instead of pointing an accusing finger at the trading community, we all have to draw up plans to augment production by bringing more land under foodgrain cultivation, improving irrigation facilities and enhancing productivity of crops with better seeds, fertilisers and pesticides. We have to bring technology to our farms. Without technological and scientific breakthroughs, our yield will remain pathetically low compared with other countries.

On account of the growing mismatch between demand and supply, we will often have to resort to imports. Such imports take place when there is a panic situation. We have to develop scientific methods of crop forecast to ascertain production and the likely deficit to eschew such shortages, which are external to the distributive trade. Significantly, this year, world over, there has been an increase in the price of foodgrains. The recent WTO Doha round negotiations failed on account of the polarisation on the trigger for applying benchmarks for export restrictions. Also, in the recent past, fuel prices have skyrocketed, leading to increases in the price of foodgrains.

The political economy is highly sensitive to price increases, particularly of basic food items. All efforts have to be taken to maintain price levels and avoid hoarding by undesirable elements. This can be done in two ways: licensing stockholders and by making it mandatory for licence holders to file returns regularly about their stocks. This would bring greater transparency in stockholding. It would also help to monitor the availability of foodgrains and induct greater accountability on the part of the trader.

The distributive trade is an important segment of the economy. It has been playing an important role in distributing goods at affordable prices to every nook and corner of the country. It is an efficient system that has been developed independent of the government. Not many countries can claim to have an efficient distribution system as we have in India. We have to nurture the time-tested system. Any effort to impose undue control on the trade would affect inclusive growth. Importantly, such measures, would breed inefficiency and corruption.