There is good amount of correction required on the supply side in the value chain in order to curtail ‘alarmingly’ rising food inflation. As per the ‘Economics times’ newspaper details, there has been 19.2% rise in the primary food articles during the month, and potato, a staple food among Indian population, climbed 123%. Prices of pulses are up by 41.6% and vegetables 39.2%. Naturally, even processed food prices have gone up!.
Imports may not alone help in bringing down the prices as the situation is not much different globally too. Prime Minister Manmohan Singh, initiating to sit in discussion with other cabinet ministers to identify a solution, is much welcomed. Is the problem because of lack of infrastructure in the food chain? Wastage of fresh vegetables and fruit due to non-development or lack of ‘farm-to-store’ cold chains and rotting of food grains due to poor storage facilities need to be addressed immediately. With rising crude oil prices to US $83 a barrel, the transportation cost is also contributing to food inflation. Rising mineral prices around the globe, following signs of economic recovery, is causing rise in domestic prices of manufacturing goods in the supply chain of processed foods too.
This has happened earlier on selected vegetables like onions especially during election time, to create ‘political’ funds to meet election expenses. This is not the right way but lack of transparency and endemic ‘corruption’ precedes in a weak ‘social causeless’ environment. What Reserve Bank of India must be prepared to act, is to suck ‘excess’ liquidity to stop the spending spree culture amongst entrepreneurs. Though this move may not directly help to bring down the food prices, it will stop the manufacturing sector, which in turn will bring down the processed food prices. Also CRR ( Cash Reserve Ratio) amongst the banks may be hiked to stop and curtail liquidity.