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Inflation control becoming harder: PM

A steep increase in food prices will make controlling inflation difficult and end up hurting the reform process, warns Manmohan Singh. Jatin Gandhi reports.

business Updated: Apr 11, 2008 02:36 IST
Jatin Gandhi

A steep rise in food prices will not only make controlling inflation difficult but also hurt the reform process, Prime Minister Manmohan Singh said in New Delhi on Thursday. At the same time, he ruled out “returning to an era of blind controls” as a reaction to the situation.

Rising food prices can hurt macro-economic stability, Singh said. “The constituency for economic reforms, so necessary to stimulate economic growth, would also diminish. Pressures would mount for restrictive trade practices,” he elaborated.

The economist-prime minister was speaking at the Global Agro Industries Forum in New Delhi after being awarded the Agricola award by the UN’s Food and Agriculture Organisation (FAO). “We in India are deeply concerned about rising commodity and food prices. Sharply rising food prices can slow down poverty alleviation, impede economic growth and retard employment generation,” he said.

Singh said that while rising food prices is a global phenomenon, “we in the developing world will of course be seriously hurt by it. Efforts to promote reforms and more open economies would be derailed in the face of persistent food shortages and rising food prices."

The prime minister acknowledged India has again run into a situation where the demand for food is more than the supply, like in the pre-Green Revolution era.

He said the government, however, cannot react to the situation by returning to “blind controls and by depressing agriculture's terms of trade.” That, he said, will hurt both the welfare of farmers and the long-term growth of the Indian economy.

“The non-farming economy cannot prosper on the back of an impoverished farm sector. Hence, we need creative and imaginative solutions that increase agricultural productivity, that increase farm incomes, that increase food production and, at the same time, also contribute to greater purchasing power in the hands of the poor,” Singh said.

Singh said diverting food crops globally to meet the growing demands of bio-fuels globally is a worrisome trend. The diversion, he said, has for the first time, interlinked food markets to oil markets, “making food policy-making extremely complex as well as uncertain.” Climate change and global warming too are likely to have a harmful impact on land productivity and water availability, he said.