Cautious reforms to tame food inflation

The general budget on Thursday proposed a set of reforms that will gingerly help to tame food inflation such as a price stabilisation fund, a revamp of the Food Corporation of India — the government’s main grain-stocking agency — and a national farm market.

The general budget on Thursday proposed a set of reforms that will gingerly help to tame food inflation such as a price stabilisation fund, a revamp of the Food Corporation of India — the government’s main grain-stocking agency — and a national farm market.

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While these are aimed at better “food management” — to curb leakages, losses and shoring up supply infrastructure — food prices remain a critical challenge and, without deeper reforms, can remain sticky. Higher “support prices” to farmers and heavy procurement by the FCI both have been significant inflation drivers.

The wholesale price index, the country’s main price gauge, rose more than expected in May to a five-month high on the back of high food and fuel prices. “(But) we are still not out of the woods,” the finance minister said on food inflation.

To curb wild swings in prices of essential commodities, a ‘Price Stabilisation Fund’ worth `500 crore was announced. Jaitley also announced restructuring of the FCI, but did not give details.

In another step, the government proposed to link markets across the country for more efficient trading of food items.

A national market for farm produce would be set up, Jaitley said, adding that talks were in progress with state governments to modify local food marketing laws.

Lack of cold storage and food processing facilities means the country wastes up to 30% of its perishable produce, according to one estimate. To spur investments on this front, the budget proposed to lower excise on food processing machinery from 10% to 6%.