The elevated minimum support prices (MSPs) for crops has significantly altered the terms of trade in favour of farmers and stimulated rural economy, Cabinet secretary KM Chandrasekhar told FE in an exclusive interview. This, however, is part-reason for the high food inflation that causes ?some pain? to sections of the population, he added.
It is natural that the high MSPs reflected on the open market prices of certain food items, but a pick-up in hitherto suppressed rural demand was going to have a catalytic function in triggering economic growth, he said.
The last two seasons have seen a major spurt in MSPs of a variety of agriculture crops. This, coupled with the rural employment guarantee scheme and its spillover effect on agricultural wages in general, considerably increased rural household income. The other side of the story is that the food prices are reflecting the high input costs.
Chandrasekhar spelt out various measures being taken to boost supply of food items and expressed hope that prices would not spiral further to warrant monetary policy action, which could come as a ?sledgehammer? blow to growth.
The Centre, he said, advised state governments to stop levying VAT on sugar as the 12.5% tax nullified the benefit of import duty waiver for raw and refined sugar, as far as the prices to the consumer is concerned. The recent dispute over sugarcane prices and restricted movements of raw sugar in UP (a substantial quantity of raw sugar imports meant for UP sugar mills are stuck at various ports), have adversely affected supply, but the situation would soon improve as the crisis has been defused.
He stressed on the need for ?medium to long-term? solutions to address distortions in the agricultural commodities? market. On the productivity side, re-balancing farm land usage to factor in changes in weather, water table and soil patterns is necessary, along with a policy-induced change in fertiliser consumption with renewed emphasis on complex fertilizers and micro-nutrients and release of subsidy directly to farmers through single-use smart cards. ?Policies need to be re-jigged in a concerted way, by involving all stakeholders.?
He said since there was a serious pulses supply problem, the solution is to import more. Prices of vegetables like potato and onion have already started to decline. ?Large amounts of wheat have already been released to the market. Supplies to big private operators have been expedited through an auction system that has reduced the time for release from about a month to just 5 days,? he said, adding e-auction would be introduced soon.
The Centre responded to the food-supply issue, caused primarily by crop damages due to long dry spell and floods, by waving or reducing import duties for many commodities including rice, wheat and edible oil. But this has not had the desired effect of boosting supplies, as international prices of wheat, rice etc. are ruling above the domestic levels.
The food price index rose an alarming 19.05% in the week ended November 28 over a year ago, as per data released last week. RBI governor D Subbarao voiced concern over rising food prices fuelling inflationary expectations, causing many analysts to predict imminence of monetary policy action. On his part, Prime Minister?s economic advisory council chairman C Rangarajan warned of the tendency of high food prices leading to ?manufacturing inflation.?