Monday, January 9, 2012

Farce of Low Food Inflation

For the last few weeks, the media has been awash with reports of how food inflation has been steadily declining. In fact, by the end of 2011, food inflation actually turned negative for the first time in about six years- a record of sorts. Pundits started pontificating how low food inflation is very good news for ruling parties because food constitutes a large part part of the budget of a poor household. And it is the poor who vote more enthusiastically during elections. Besides, low food inflation means that the stubbornly high rate of high overall inflation might begin to come down.

Pardon me for 'deflating' such hype and hoopla revolving around inflation. But then facts are facts, and only pundits try to interpret facts to suit their theories or their ideologies. Unabashed hacks like me merely go by what the facts state. To start with, the negative food inflation that we have witnessed is as per the wholesale price index or WPI. Now, the WPI is computed by taking prices quoted in wholesale mandis across India. Wholesale prices in India often bear no relation to what you and I actually end up paying eventually. But grant the pundits their WPI fascination and see the facts. The primary cause for food inflation turning negative is a steep fall in the prices of potato, onion and some vegetables. Now, prices of these products anyway fall during winters; last year was an exception because mismanagement had led to a rise in onion prices. But even if you take the WPI, prices of milk, eggs, meat and poultry products and a host of other food items have actually gone up. The wholesale price of milk has actually gone up by 10%.

So now let us consider the real thing, which is what pundits call the consumer price index. This is based on the cash we actually dole out while buying stuff from retail outlets. Now, I do go out and regularly buy vegetables. And believe me, the price I have been paying the last few weeks for potato, onion and vegetables is not as low as the WPI would suggest. In fact, except onion, the prices of other vegetables are virtually the same as they were last January. But the price of every other imaginable food item that is consumed by a household has actually gone up. Poor families try very hard to increase the protein intake of their children through milk, eggs, meat and pulses. The prices of all these have gone up considerably. Forget poor families, even middle class ones are finding it difficult to handle the sustained rise in prices of articles of daily and regular use. And yes, families-except a few brave heart ones- don't really go to wholesale mandis to stock up for the week or the month. So telling the poor and the lower middle class Indians to start cheering and clapping because food inflation has turned negative is farcical, of not downright cruel.

The whole debate about inflation in India has been quite farcical actually. The fundamental problem in India is not inflation but the structural problems that cause it. I mean, you read reports about farmers are literally dumping potato crops because there is no one willing to pay even Rs One a kilo for it. Then how come you and me still end up paying almost Rs 10 for a kilo of potato? In most cases, the prices that we pay for vegetables and other stuff are at least five times what the farmer gets. So our economic structure ensures that the average farmer is condemned to poverty and often suicide while we keep paying higher and higher prices. The only way out of this is to create physical and information infrastructure that will actually link the rural producer with the urban consumer in a more effective way. I see no signs of that happening in a hurry.

And once the seasonal harvest of cauliflowers, brinjals, cabbage and potato is exhausted, rest assured food inflation even as defined by the WPI will be back with a vengeance. Not that it will make much of a difference to the poor family.


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