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Farm output sparkles, but high prices continue to pinch: Chidambaram

business Updated: Feb 17, 2014 23:49 IST
HT Correspondent
Interim budget 2014

India’s food output is growing twice as fast as its population, and has joined a small club of nations to do so, finance minister P Chidambaram said on Monday, underlining a triumph on a key front from the UPA government ready to fight polls amid a welter of political charges and corruption scandals.

But growing enough food is one thing. Distributing it well so that everyone has access to affordable food is quite another. Stubbornly high food prices, which rose 13.6% in December from a year earlier, has been a glaring failure. “Food inflation is still the main worry,” Chidambaram said in his interim budget speech.

The country’s farm output has gone up from about 50 million tonnes in 1950-51 to 257 million tonnes in 2011-12 and still higher at a likely new record of 263 million tonnes in 2013-14. This has helped India avoid a scary “Malthusian world” of food production not keeping pace with population growth.

The food security law, enacted by Parliament last year, is aimed at distributing affordable foodgrains, but it can hardly bring down prices of products outside its basket, such as vegetables. Chidambaram earmarked Rs. 1.15 lakh crore for all food subsidies for 2013-14.

The UPA, on its path boost food production, did encounter agriculture’s equivalent of a plane stalling in mid-air: droughts, severe in 2008, and partial in 2010.

However, droughts are no longer the disaster they used to be, thanks to a well-honed drought management.

Recovering quickly, India consistently raised food output. Three things helped, although not consistently: the massive farm loan waiver scheme that added comfort to farmers; the rural job scheme under the NREGA (National Rural Employment Guarantee Act); and higher minimum support prices (MSPs) for agricultural commodities.

The UPA, in its 2008-09 budget, had announced a “debt waiver” of nearly Rs. 71,000 crore, seeking to write off, partly or wholly, the loans of 42 million farmers.

The waiver, as fiscal hawks saw it, was always going to be about “bad economics”. But to millions of farmers, it was a mood-lifter in a task vulnerable to vagaries of the weather.

However, it’s hardly a surprise the scheme may have been corruption-ridden, according to a Comptroller and Auditor General report.

While higher MSPs have directly boosted output since farmers got guaranteed prices, these have also stoked inflation by raising the prices of farm goods. MSP is the price the government offers to all farmers. An RBI study found that a 10% MSP hike raises short-term wholesale inflation by 1 percentage point.

A higher MSP for wheat, for example, helped record production, but at the expense of vegetables, whose shortage drove food inflation.

“Policy on price and procurement supports should be calibrated so as to not encourage more production of crops already abundant,” RBI chief Raghuram Rajan said in India’s annual Economy Survey 2012-13, just before stepping down as chief economic adviser to become the Reserve Bank chief. That’s the way forward because unaffordable food, quite simply, means lack of food for hundreds of millions of Indians.