The government seems to be in discussion mode on the tricky issue of food inflation. After a meeting with the Congress Working Committee on Friday, the PM will meet all chief ministers today to thrash out a way to curb food prices. The point, of course, is whether anything substantive will emerge from these discussions or whether they will simply degenerate into blame games between different politicians and different parties. Of course, the Union minister in charge of agriculture, food, public distribution and consumer affairs, Sharad Pawar, has spent much time talking up prices of key food items and must take some of the responsibility. But the real solution to the problem of food prices will not come from changing ministers or bifurcating portfolios. What is needed is massive reform of agriculture?production, distribution and retail?which will need consensus from across the political system. For the moment though, the government has given no indication that it has agriculture reform at the top of its agenda.
The first thing to recognise before proceeding with reform is that the problem of food prices isn?t a one-off one because of an erratic monsoon. There is a genuine medium-term mismatch between demand that is rising rapidly and supply that is not. No one would reasonably suggest that demand be curbed to control food prices, though RBI has tried just that in a roundabout way in its recent tightening of liquidity. The long-term solution clearly lies on the supply side and that is something governments (Centre and states) can work at. For one, the government must reconsider minimum support prices that are continuously raised upwards without any consideration to demand or supply?there is some evidence that rising MSPs may have pushed food inflation. Second, the next time there is a visible shortage, the government should move to import much quicker than it did this time around. Of course, the government should spend more resources investing in infrastructure for agriculture (particularly irrigation) than it does in fixing prices. That?s what will raise productivity and yields. Much work also needs to be done on supply chains to ensure that agricultural produce reaches final consumers with minimal loss of produce and with minimal interference from intermediaries?the spike in vegetable prices has a lot to do with commission made by a series of intermediaries from farm to market. The key policy reform to enable this would be to encourage big retail, which can source directly from farmers, thus giving both farmers and consumers a better final price. These are just some of the options for reform, but can the government led by the PM convince itself, its party and the Opposition that all this is desperately needed in the interest of the aam aadmi?
