The opposition had begun highlighting the galloping price rise from the middle of 2009 though prices of cereals, especially rice, let alone other basic consumption commodities, had begun to surge since the first quarter of 2008-09. The upswing never faltered, and in 2009, the malady was conveniently attributed to the monsoon failure, but what of that, Government had “abundant stocks of foodgrains” to tide over any crisis. In a milieu of complacency, top policy-makers set faltering time lines for food prices to ease. Even the too late and too little market intervention had no effect on food prices.

By March 27, 2010, the last week of fiscal 2010 - a year of unrelenting consumer price inflation - food articles had peaked to 17.7 per cent, and the 52-week average worked out to 14.49 per cent. What matters to Government has been the headline inflation (WPI) - not what the burdens the people have to bear in buying food in the retail market- and it was not until WPI itself reversed its slowdown since November 2009, authorities at the Centre could see faint signs of a build-up of inflationary pressures. Combined with the rising oil prices in the international market, food and fuel prices were already working their way into the general price level, a contingency foreseen by the more alert monetary authority, RBI.

The situation appeared to be getting out of control with the irremovable supply constraints and the best approach seemed to UPA Government to be to make it a national challenge for the Centre and States to come together and battle it out and secure durable solutions. The Prime Minister Dr Manmohan Singh called a meeting of Chief Ministers on February 6 to discuss the price situation and it was decided that a Core Group of Union Ministers and Chief Ministers should be constituted to go into the entire gamut of issues in agriculture - production, prices, marketing, storage, ensuring effective supply of essential commodities to the vulnerable sections of people. By then, even WPI by which Government sets store had neared double digit at 9.89 per cent in February.

While striking a note of optimism for the Indian economy over the medium to long term, the pre-Budget Economic Survey attributed the double-digit inflation in food articles to “supply side constraints“. The principal concern reflected in the survey, as in the recurring speeches of the Finance Minister, is growth at higher levels, 8.5 per cent this year, 9 per cent next year and 10 per cent in 2012/13, the first year of the 12th plan which, the Prime Minister has suggested, should aim at double-digit growth. The Survey enjoins that it would be incumbent on the policy authorities not only to address the inflationary expectations but also ensure that “growth in money supply and credit to productive sectors is at the envisaged levels so that growth prospects in the in the near to medium term are sustained on an even keel“.

Arising out of the overhanging threat of inflation, triggered by food prices, the Centre and States can now be said to have jointly embarked in the quest for food security through sustained agricultural productivity. The Core Group at its meeting in New Delhi on April 8, attended by the Prime Minister, the Finance and Agriculture Ministers and the Chairman of the Economic Advisory Council Dr Rangarajan as well as Chief Ministers/Ministers from nine states has given itself the widest terms ever for a holistic approach to achieving sustainable agricultural growth so critical for rural prosperity.

The lengthy press release on the meeting covers all dimensions and three working groups have been set up headed by Chief Ministers - one on increasing production over the long term, the second one on ensuring effective delivery of essential commodities to vulnerable sections and augmentation of storage capacity, and the third one on reducing the gap between farm gate and retail prices and better implementation of Essential Commodities Act.. The Prime Minister told the meeting that primary concern was to insulate the poor and the vulnerable from rapid rise in prices of food and essential commodities. Food production needs to match not only population growth but also satisfy the food and nutritional needs of country. Currently, India has the largest number of deprived of food and nutrition.

In other words what the States have been entrusted with is drawing up virtually a de novo plan for agriculture. It only underscores the relative neglect of the primary sector in our macro-economic planning, in relation to manufacturing and services which are regarded as real engines of growth. In any case, the ambitious food security law that is on the anvil to supply 25 to 35 kg of grain at Rs.3 per kg to every poor household per month, in whatever form it finally emerges and the extent of its coverage, has brought to the fore the supply side, and the law to be meaningful has to operate with assured delivery to the intended beneficiaries.

Governments at the Centre have always limited their sights to ensuring that people below the poverty line (BPL) are served subsidised grains through the public distribution system. The rest of the population, more than two-thirds, have to fend for themselves bound by the dictates of the market. It is here that Governments cannot duck themselves out of sight when prices go haywire but ought to bring into play all the instruments, fiscal, monetary and administrative, at their command. Creditably, the Reserve Bank of India is doing its job in this regard delicately balancing the seemingly conflicting demands of growth and inflation.

RBI has already begun the process of monetary tightening to ensure growth with a degree of price stability. Given the unabated rise in prices across the board, RBI's annual monetary and credit policy statement on April 20 is expected to further tighten policy rates and reserve ratio. Even so, whether inflation can be tamed in the months to come is uncertain. India has the highest rate of inflation among Asian emerging economies.

The outlook for stable growth in the current fiscal year is thus clouded by the high degree of inflation already built in, the price impact of the budget measures and the further push that would result from monetary expansion to accommodate the massive borrowing planned for the year, notwithstanding the commitment to hold down deficit to 5.5 per cent of GDP. The annual policy statement will also unveil measures to strengthen financial stability and take the process of financial inclusion to a new level.(IPA Service)