By Anjan Roy
People are generally happy
when prices are low; they feel even better off when prices are falling. But
that could be a nightmare for the economic policy makers. Rising prices can be
fought back; but it is impossible to tackle falling prices. Japan, f’or
example, is fighting deflation for two decades without much success.
We have been familiar with
rising prices and politics around it. For the last two years prices have been
benign. But in intervals we have had very low inflation or even deflation.
Inevitably the government of the day claimed credit for it, and there is
nothing unusual about it.
The latest consumer price
index, released on February 12, shows very low inflation of 2.05%, which is well below the Reserve
Bank’s target rate of 4%. And worse
still for India now, food prices are falling rather too fast for coomfort. The
latest consumer price index, which is an indicator of retail prices, has
touched a low not seen since June 2017. Food price inflation rate has been put
at (minus) 2.17% for January this year. This comes on the back of another spot
of price deflation in December 2018.
There is nothing to crow about
this phenomenon. A closer look at the disaggregated inflation figures would
reveal that the CPI fall is due mainly to the disinflation in food prices.
Among those items which saw a fall are particularly fruits and vegetable
prices, Eggs have also tumbled.
The data shows at the same
time an achievement and a failure. Farm production has risen substantially and
Indian agriculture has demonstrated its agility. Coupled with this, we have
failed the agricultural sector by trailing in creation of farm infrastructure.
Because of acute shortage or
outright absence of say cold storages or refer vehicles for transportation of
perishable items from harvests to the markets, larger production is immediately
depressing prices. Instead, if the storage facilities and transportation
linkages were in place, the higher production could have been held back for a
while rather than being dumped. Thereby, the prices would not have been under
pressure.
Take for instance the case of
broccoli in the Delhi markets. Until recently, broccoli was such a rare item
that it used to fetch fancy prices like Rs200 per kg a few years back. The cultivators took note of the price
and moved over to growing broccoli, mostly in Himachal Pradesh. Many of the
markets in Delhi are inundated with the items and it selling at less than Rs50
a kg.
Side by side, in the fancier
localities, it is still being sold at around Rs80 for a kg, demonstrating the
rigidities in the markets and distribution networks. Another item is peas.
Beautiful long peas are selling at Rs15 to Rs20 per kg which sells for no less
than Rs60 to Rs70 kg later in the year.
And frozen peas are sold for Rs150 in summer.
It is none too difficult to
guess that the farmer is hardly getting any price worth the name, Sometimes
these do not cover even the costs. But only a handful of intermediaries are
earning the cream to the extent they can hold. The rest getting wasted. No
wonder that India is having one of the highest level of post harvest wastage.
Hypothetically consider a
situation in which large organised retail chains, including the massive foreign
operators, were allowed free play in the market. These large companies could
invest equally humongous amounts to create the storage and marketing
facilities. These networks could have smoothened the kinks in the chain.
Falling or rock bottom prices
for a wide range of farm products, as is
being witness currently, has obvious other macro-economic implications. Prices
of staple grains have remained flat for a long time as we have by and large
overcome food scarcity of an earlier time. But low prices suppress rural demand
and thus we miss a major source of domestic demand.
Established wisdom of granting
ever higher MSPs for the major grains has had only limited impact. The move
might have served the objective of being politically correct; but beyond that
it has hardly achieved any meaningful economic objective. These are at best
another form of a subsidy.
Inflation, like body
temperature, should be positive but not too high. A little inflation shows that
the economy is buzzing with income and activity. For sure, food prices will
start northwards trek in a few months when the summer strikes hard and
vegetables production takes a dip.
But these price trends amply
demonstrates the need for action soon from a long-term perspective. That is not
simply a formula for emergency compensation but nurturing a holistic market
structure for farm goods. Also ago-based industries in the growing areas for
processing perishable commodities near the centres of production could
ultimately help. (IPA Service)
The post Falling Food Prices Hitting Rural Economy appeared first on Newspack by India Press Agency.
