More pertinent is the fact that this report had been prepared by a panel headed by PM-designate Narendra Modi in his capacity as Gujarat chief minister just over three years ago and was submitted in March 2011 to former PM Manmohan Singh.
The recommendations, including reforms of the APMC Act, liberalisation of agri-markets, along with an unbundling of FCI operations of procurement, storage and distribution, will form the blueprint for the NDA government’s supply-side attack on inflation, according to a BJP economic cell representative. Consistent with the stand that the BJP top brass had maintained in the run-up to the election that the problem of spiralling inflation is specifically on account of supply-side bottlenecks and that raising interest rates, while being ineffective in tackling core inflation (non-food, non-fuel inflation), only served to dampen a demand-led recovery. The BJP’s hard stance against FDI in multi-brand retail notwithstanding, the recommendations include fostering competition by way of promoting retailing through the “organised sector and cooperatives”.
Despite being slightly dated, what makes the report relevant is that none of the key recommendations was taken up by the UPA government for implementation, something that the BJP top brass had complained about subsequently. And more importantly, despite a tight interest rate policy maintained by the Reserve Bank of India (RBI), inflation has again started to rear its head, with the latest year-on-year inflation estimates for March showing a spike in retail inflation on higher food costs.
Analysts say the risk of less-than-normal monsoon rains this summer will call into question assumptions that the worst is over on the inflation front.
The focus of the new government, according to BJP economic cell leaders, will be on addressing supply-side issues rather than trying to curtail inflation via monetary policy instruments and hiking interest rates.
The Working Group on Consumer Affairs headed by Modi was constituted on April 8, 2010, and the report was finalised in January 2011. The other members of the panel included the chief ministers of Maharashtra, Andhra Pradesh and Tamil Nadu. Unlike the usual practice of voluminous reports, the Modi committee report was touted as a “precise document” that gave specific recommendations with 64 detailed actionable points that will facilitate “expeditious implementation of the report”.
The other key recommendations include a ban on future trading of essential commodities, the setting up of a central price stabilisation fund, a ministerial-level coordination mechanism at the national and the regional levels for coordinated policy making. The measures also include specific interventions such as a time-bound development of agri-marketing infrastructure, including storage capacities in food deficit regions, cold chain, agro-processing, and increasing competition by promoting retailing by organised sector and cooperatives.
The report also suggested the setting up of a price stabilization fund by the central government to help state governments procure and distribute essential commodities in short supply. For evolving a single national agriculture market, the Modi committee report has recommended to set up a “ministerial-level coordination mechanism at the national and the regional level for coordinated policy making”. Enlarging the scope of priority sector lending such as that to agriculture marketing activities is also be made eligible was another key recommendation. To minimise information asymmetry in the agriculture market, the Modi committee report also called for establishing a mechanism, if necessary by creating a dedicated agency, to collect and widely disseminate information to all stakeholders on production, import, stocks and overall availability of essential commodities besides extensive use of the information.
The Modi panel also recommended that offences under Section 10-A under the Essential Commodities Act should be made non-bailable and that special courts be set up for speedy trial of offences under the legislation. In addition, the report also stipulated that the period of preventive detention under the Prevention of Black-marketing and Maintenance of Supplies of Essential Commodities Act, 1980, should be increased from six months to one year.