Inflation hurts the poor most
Is India, the world’s second most populous nation, facing a food crisis?
This question is vexing policy makers and analysts alike even as creeping inflation – around 7% now – is sending jitters through the Congress party-led ruling coalition.
To be sure, India has not yet experienced riots over rising food prices that have hit other countries like Zimbabwe or Argentina.
But what is worrying everybody is that the current rise in inflation is driven by high food prices.
In the capital, Delhi, milk costs 11% more than last year. Edible oil prices have climbed by a whopping 40% over the same period.
More crucially, rice prices have risen by 20% and prices of certain lentils by 18%. Rice and lentils comprise the staple diet for many Indians.
Tax on the poor
Inflation, economists say, is akin to a tax on the poor since food accounts for a relatively high proportion of their expenses.
All of which is bad news for ruling politicians because the poor in India vote in much larger numbers than the affluent.
Roughly one out of four Indians lives on less than $1 a day and three out of four earn $2 or less.
The rise in food prices, the government says, is an international phenomenon.
But this argument is unlikely to cut much ice with the people.
Food prices have risen sharply in the past year
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At the crux of the crisis is the tardy pace at which farm output has been growing in recent years.
The Indian economy has been growing rapidly at an average of 8.5% over the last five years.
This growth has been mainly confined to manufacturing industry and the burgeoning services sector.
Agriculture, on the other hand, has grown by barely 2.5% over the last five years and the trend rate of growth is even lower if the past decade and a half is considered.
Consequently, per capita output of cereals (wheat and rice) at present is more or less at the level that prevailed in the 1970s.
The problem acquires a serious dimension since farming provides livelihood to around 60% of India’s 1.1 billion people even though farm produce comprises only 18% of the country’s current gross domestic product (GDP).
On the other hand, the services sector – that includes the fast-growing computer software and business process outsourcing industries – constitutes over 55% of GDP with the remainder being taken up by industry.
The crisis in farms is exemplified by the state of the country’s cereal stocks.
Vulnerable farmers
Six years ago, the stocks were at record levels.
Nobel laureate economist Amartya Sen had said if all the bags of wheat and rice with the state-owned Food Corporation of India were placed end to end, they would go all the way to the moon and back.
Stocks have come down over the past three years because of low production and exports.
The problem has been compounded by the fact that whenever India has imported wheat in recent months, world prices of wheat have shot up.
Growth in the farm sector has been sluggish
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There is also considerable resentment over the fact that the price of wheat that the government imports is often twice as high as the minimum price the government pay its own farmers for domestically grown wheat.
Indian farmers are particularly vulnerable since 60% per cent of the country’s total cropped area is not irrigated.
They are also dependent on the four-month-long monsoon during which period 80% of the year’s total rainfall takes place.
The crisis in agriculture has been manifest in the growing incidence of farmers taking their own lives.
At least 10,000 farmers have committed suicide each year over the last decade because of their inability of repay loans taken at usurious rates of interest from local moneylenders.
Populist moves
There has never been an acute shortage of food in India, not even during the infamous famine in Bengal in 1943 in which more than 1.5 million people are estimated to have died of starvation.
The problem then – and now – is entitlement or access to food at affordable prices.
Given the low purchasing power of India’s poor, even a small increase in food prices contributes to a sharp fall in real incomes.
The current crisis in Indian agriculture is a consequence of many factors – low rise in farm productivity, unremunerative prices for cultivators, poor food storage facilities resulting in high levels of wastage.
Rising food prices has made the government jittery
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Fragmentation of land holdings and a fall in public investments in rural areas, especially in irrigation facilities, are also to blame.
The government has announced a $15bn waiver of farmer loans and extended a jobs scheme – ensuring 100 days of work in a year entailing manual labour to every family demanding such work at the official minimum wage – to all over the country.
None of these populist initiatives will really work until India’s rulers begin giving its ignored farms the importance they deserve.
You do have to act swiftly. You can’t say this is a banks’ problem, because it is also your problem 
Valleywag - valleywag.wordpress.com 
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