Saving household budgets

The official indices on inflation show that prices are under control "" with inflation levels hovering around the 5 per cent mark. However, most individuals find that items of common consumption have gone up by much more than what the indices tell. Fruits and vegetables, lentils, sugar, fuel, and in some cases even foodgrains have seen sharp price increases, and household budgets have therefore been under pressure. Whether this points to defective indices is a point for the future. Immediately, the government has got cracking and the Cabinet's committee on prices met last week to address the problem. Some of the decisions "" especially on opening up imports "" have had an immediate impact and prices have softened as a result of the psychological impact on the trade. But the government has to go a step further.

Wheat prices have been fairly stable after the harvest of the fresh crop in April, despite some flawed and strategically mistimed policy pronouncements regarding bonus payments on the procurement price of wheat. Sugar prices had climbed over several months, but they too have stabilised in recent weeks; imports are not really a long-term solution because international prices have been ruling higher than what prevails in domestic markets. More effective than imports therefore would be reform of the government's handling of the sugar sector, because the price buoyancy is government-supported, if not government-sponsored, as domestic sugar prices are remote-controlled through the monthly release mechanism.

The prices of pulses have sky-rocketed, and the government's decision to ban exports is therefore logical "" though here too the impact of this is more on the psychological front, as little exports were taking place. Meanwhile, fingers have been pointed at speculative trading on the commodities exchanges. Such trading helps in price discovery, and is therefore of benefit to farmers. There is no case therefore for banning such trade, which is a demand that has been aired. The fact is that the country is perennially dependent on pulse imports because of the chronic demand-supply mismatch, and domestic prices are therefore affected by fluctuations in the international market.

The Cabinet committee would do well if it goes a step further and looks at the genesis of the price rise and addresses root causes. A major factor for hardening prices is the stagnation or deceleration in production growth, and the failure to improve farm productivity. While the output of wheat has been virtually static since the late 1990s, that of pulses has not risen for decades.

On the other hand, inventories in the central grain pool have been squandered, and that too at highly subsidised rates "" and some of the buoyancy in domestic prices is on account of private trade having reckoned that the government now has little stock in its granary, especially since the procured quantity of grain has been lower than usual. Such short-term management issues aside, production-enhancing factors, such as irrigation and fertiliser use, have not been given the attention they need, while policies for the fertiliser industry remain a mess. The government needs to revisit the entire gamut of issues concerning farm prices and take the necessary corrective action that addresses the longer-term supply-side factors. Higher domestic production and productivity are essential.