FE Editorial : On price rise

Written by The Financial Express | Updated: Aug 1 2010, 03:16am hrs
Food inflation has finally come down to single digits, recording 9.67% for the week ended July 17, down from 12.47% a week earlier. But that isnt likely to offer the government much relief in the immediate short run with the Opposition continuing to mount pressure in (or should we say outside) Parliament. The decline in inflation doesnt, of course, mean that food prices have fallen; in any case much of the decline can be explained by the base effect. So there continues to be a serious problem of persistently high food prices. Unfortunately, neither the government nor the Opposition seem to have the political will to propose the structural reforms that are essential to combat the problem of rising food prices over the medium term. The Opposition has been vociferous about the governments inability to tackle food prices but is the Opposition willing to propose and back reform measures that can actually alleviate the problem

One of the most important reform measures that can help dampen food prices, in particular, is enabling the extension of big retail, particularly FDI in retail, which will help cut out the many commission-gobbling intermediaries between the farmer and the final consumer. The UPA government has unfortunately blown hot and cold on retail FDI, but the Opposition (Left and BJP) has arguably done worse by staunchly opposing FDI in retail. The Left, of course, is caught in an ideological bind and the BJP is apparently in sympathy with kirana store owners, even though all available evidence suggests that there will be no wiping away of their businesses should FDI in retail be allowed. The Opposition hasnt exactly been forthcoming on other reform measures either. No one has raised serious questions about the governments decisions to continuously raise the MSP of key crops, something that may be contributing to higher consumer prices. No one is effectively criticising the wasteful public distribution system and calling for its complete reform or indeed abolition, something we have argued in favour of in these columns. There will be limited dividend for the Opposition if it simply continues to stall parliamentary proceedings on the issue of price rise without actually presenting convincing policy solutions for the same. Tactically, the Opposition, particularly the market-friendly BJP, may be missing a chance to lay down the gauntlet to the government on carrying out serious agricultural reforms. If the BJP were willing to support radical reform, the UPA would have fewer excuses for its inaction.