As Parliament debates the costs of last year's drought that are visiting us now, there is no escaping India's need for deep and wide farm sector reforms. Historically, food inflation has ratcheted up by 4 percentage points in every year after the monsoon fails the sub-continent. The latest data would indicate, though, that the fever has broken in food prices, wholesale inflation on this account is back in the single digits for the first time in months. The wild card — this year's monsoon — is not truant and should buttress the nascent trend. The softening is set to persist as the malignant inflation of a year ago will provide a high base and if prices stay at current levels food inflation should decline by over a percentage point each in subsequent weeks.
The continuing story in the inexorable rise of food prices is the Indian population is growing faster than farm output. At an estimated 1.5 per cent, the annual rate of increase in population is ahead of the 1 per cent growth in grain production in 2008-09. Food prices also get pushed upward by the invisible hand of the markets and the very visible hand of the government. Depending on how you choose to measure it, food makes up from 25 per cent to 65 per cent of the weight in the several price indices the government puts out. The pressure of food on the price line unfortunately has not received the policy attention it deserves. India has a long way to go before it can get food into every mouth that needs it. First, we need a fix on how many people face hunger. Varying estimates of poverty muddy the picture as do the perverse fiscal incentive of claiming inflated incidence. If our policymakers zero in on one number they still have to figure out how to get the food to them before it rots in granaries or is stolen. The world's second largest producer of fruits and vegetables loses a quarter of its produce between the farm and the table. Likewise, nearly 7 per cent of Indian grain rots. Furthermore, it costs nearly R 7 to transfer one rupee worth of benefits to the poor through the public distribution system and just over half the total food subsidy reaches the consumer.
Then there is the larger question of whether subsidised food is the most convenient option to keep hunger at bay. Much the same result can be achieved by widening the circle of prosperity but the process is slower. Enhanced farm productivity is vital for keeping food prices in check, on the one hand, and raising rural incomes, on the other. Also, mitigation, not management, is what should shape India's approach drought. That would involve agriculture technology upgrades, a shift towards drought-resistant seeds, and rehabilitation of water delivery systems.