 "CACP chief queries policy cocktail")
The rate of India's food inflation was in double-digits for a third straight month in February, at 11.38 per cent. The paper is titled 'Taming food inflation in India' and is co-authored by Shweta Saini, an independent researcher. It is based on an extensive econometric analysis of India's food inflation from 1995-96 through December 2012. "The domestic fiscal deficit, domestic farm wages and global food prices, when put in a log-linear equation, explain more than 98 per cent variation in the prices of Indian food articles," the paper said.
It spells out a host of measures needed for a turnaround. First, it says, the Centre should rationalise (meaning, cut as much as possible) the subsidies on food, fuel and fertiliser.
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"Our calculations show the food and fertiliser subsidies combined can be pruned by almost Rs 60,000 crore in the 2013-14 financial year if the government moves towards a direct cash transfer route by using the Aadhaar platform in the case of food and fertilisers to direct beneficiaries," Gulati said. Of this, Rs 40,000 crore can be saved in food subsidy if leakages in the Public Distribution System (PDS) are plugged and the high cost of storage and movement of grain is saved.
In an earlier paper on food subsidy, the CACP had estimated that as of 2009-10, about 40.4 per cent of all foodgrain (rice and wheat) lifted by state governments for distribution among beneficiaries at cheap rates does not reach those actually entitled.
In the 2013-14 Union Budget, the government has pegged total food and fertiliser subsidies at Rs 155,971 crore, of which the food subsidy alone is Rs 90,000 crore.
The paper strongly advocates liquidating government's foodgrain inventories through exports, as a tool to bring about non-productive expenditure savings. It says this would go a long way in reducing the current account deficit, which was as high as 6.7 per cent of GDP in the third quarter of 2012-13, and also the fiscal deficit. The Centre's fiscal deficit is projected to decline to 5.2 per cent of GDP in 2012-13 from 5.7 per cent in 2011-12. It is pegged at 4.8 per cent in 2013-14.
India's foodgrain stocks might cross 90 million tonnes by July 2013. Even if government wants to keep 40 mt in reserves, liquidating the remaining 50 mt can bring back Rs 80,000-100,000 crore to the exchequer. "Else, the very cost of carrying this 'extra' grain stock alone will be more than Rs 10,000 crore each year, counting only their interest and storage costs, all of which can be saved, and the fiscal and current account deficits improved, if one moves faster on the policy front," the paper says.
On rising farm wages and its contribution to fanning the food inflation, the paper said the way forward was not to stall the increase in wages but to complement it with raised productivity, so that the increased demand caused by rising wages was supplemented by an increasing output per worker.
"Labour productivity can be raised by farm mechanisation, freeing up the land-lease market and custom hiring of farm machines," the paper said. It also said a part of the wages distributed through the Mahatma Gandhi National Rural Employment Guarantee Scheme should be dovetailed with agriculture, so that labour remained productive and farming did not suffer.
On global food inflation and its impact on food prices here, the paper advocated a policy of an active and variable import and export tariff structure, rather than outright bans. "Global food inflation is not within India's direct control but India can moderate its influence, especially spikes, on domestic prices by a variable tariff structure," the paper said. It also suggested that organised retailers have a window for franchise by kirana stores or even vendors.