The government?s political worries about inflation centre on prices of some general consumption commodities?vegetables, milk, eggs, fruits, and, to some extent, foodgrains?whose prices remain higher than ?tolerable? limits. As argued in these columns, prices of commodities have begun to fall and are likely to fall further?this is the cyclical nature of the commodities market and over time, India will see a fall in commodity price inflation. However, the government seems desperately keen to ensure the price fall will be faster in the run-up to the elections. Thus, the latest decision of the government extending the power of states to impose stock limits on wheat and pulses, and include paddy in this list. Thus, too, the decision to sell wheat and rice in the open market from government stocks. The latter is a big step towards making key essential foodgrains?wheat and rice?available at ?affordable prices?.
Retail prices of wheat have remained fairly stable across the country at around Rs 1,300-Rs 1,500 per quintal, barring some minor upward movement in south India. So, the decision to sell around 4 million tonnes to 5 million tonnes in the open market seems like an insurance against any possible flare-up in prices courtesy the coming festival season. The timing of the sale?September to March?also signals that the government wants to divest a part of its huge inventory of over 23 million tonnes before new procurement starts next April. For rice, the open market sale scheme is somewhat more in sync with prices as rice prices in Delhi have moved up by around Rs 200 per quintal since May, and have risen by around Rs 300 per quintal in southern states, where it is the main staple diet. The sale may help dampen prices and encourage private trade to sell more. Combined with all these is the move to regulate sugar exports and end the yearlong subsidy on them. Sugar prices have risen by Rs 400 per quintal in the last one month and the government?s apprehension is that another substantial increase will be politically bitter; sugar has more than 3.5% weight on the inflation index. Expect more such interventions at least until the end of this year.
