PM reminds States of their role in managing inflation

Prime Minister Manmohan Singh addressing the Chief Minister's Conference on Prices of Essential Commodities, in New Delhi on February 06, 2010. Union Minister of Consumer Affairs, Food and Public Distribution and Agriculture, Sharad Pawar, Union Finance Minister, Pranab Mukherjee and Deputy Chairman, Planning Commission, Montek Singh Ahluwalia are also seen.

Prime Minister Manmohan Singh today reminded State Governments that they had a vital role to play in managing inflation and had to ensure that the food articles released by the Centre quickly reached the intended beneficiaries.

"I think our distribution system is hopelessly outdated with the exception of a few states and it needs complete overhaul," he said in his inaugural address at the Conference of Chief Ministers on Prices of Essential Commodities here this morning.

He urged the State Governments to give focused attention to developing market intervention mechanisms which could act as a supplement to the Public Distribution System (PDS).

He felt that the State Civil Supply Corporations and Directorates needed to be greatly strengthened and powers under the Essential Commodities Act now available with the State Governments should be used to prevent creation of artificial scarcity.

Dr Singh pointed out that Union Agriculture, Food and Civil Supplies Minister Sharad Pawar had, on many occasions, drawn attention to the wide difference between the retail and the farm gate prices and there was evidence that retail prices had shot up more than wholesale prices.

"We need therefore greater competition and therefore need to take a firm view on opening up the retail trade. There are also serious problems with the proliferation of state and local taxes, cesses and levies. I am told that as much as 10-15% additional cost burden at the retail level arises because of taxes on food items. This too needs to be addressed," he said.

He told the meeting that, from a longer term perspective, much more attention needed to be paid to the factors that result in low productivity in Indian agriculture.

"It is well known that in many food crops, including pulses, which are in short supply, large increases in yield per hectare are possible through location-specific nutrient management in both irrigated and un-irrigated situations," he said.

He urged the Chief Ministers to introspect on why more attention was not being paid to highly cost effective means of raising productivity and production.

He stressed that agriculture was a state subject and the key instruments for spreading knowledge of best practices were in the hands of the states. He urged the Chief Ministers to strengthen and modernise the agricultural extension services and suggested that they should ensure that their best officers man posts in the agriculture department, especially the post of Agriculture Production Commissioner in the states.

Dr Singh also said States must pay attention to timely collection of reliable statistics. He pointed out that this year the initial data made available by States showed much less production than what their latest estimates show.

"As expectations play a very big role in determining food prices, the initial low expectation, therefore, also contributed to the price increase," he said.

However, the Prime Minister said he believed the worst was over as far as food inflation was concerned.

"With good crop prospects, remunerative procurement prices now being in place and Indian prices being broadly in line with international prices, I am confident that we will soon be able to stabilise food prices. Also, the new production figures should help to moderate inflationary price expectations. Food prices have softened in recent weeks and I expect this trend to continue," he observed.

Today's meeting came a day after the Congress Working Committee (CWC) met here yesterday to consider the situation arising out of the rising food prices.

"We are all very concerned about the distress that the sharp rise in food prices has caused to the common man. But before we deliberate upon what can be done to address the issue, it is important for us to know the background of the problem," he said.

Dr Singh spoke about how 2009 was dominated by the concern to protect the Indian economy from the effects of the global economic slowdown. He expressed satisfaction with the fact that India had only seen a modest deceleration and the growth rate in 2008-09 was 6.7 per cent. He said that the growth rate in the current financial year was likely to be 7.5 per cent.

He said the Government had also been able to protect the inclusiveness of the growth process to a large extent. He said the National Rural Employment Guarantee Act had been a central instrument for supporting income of the poor in the rural areas. He said the Government had also greatly expended public spending in rural areas, especially in employment intensive activities, all of which had helped create rural income in a difficult time.

"While we did well to protect incomes of the poor, we have been less successful on the food prices front. Food inflation had begun to rise in 2008, reflecting a sharp rise in global prices of foodgrains. This upswing was further accelerated in 2009 because of the failure of the monsoon, which was the worst since 1972," he said.

He listed the steps taken by the Governmet on several fronts to cope with the situation, including early action to augment the Kharif output in 2009, which had helped to contain the fall in foodgrain production to a large extent. He said this was evident from the encouraging trends in the procurement of paddy thus far in the current year.

The Prime Minister took the opportunity to praise and thank the Chief Ministers of Punjab and Haryana for their pro-active measures in this regard. "They manfully came forward and ensured that our food security is not compromised in the wake of very severe drought. I am aware that in doing so, their finances were hugely strained. I assure them that we will not be found wanting in our support," he remaked.

He assured the country that the Government had adequate food stocks of rice and wheat in the Central Pool to maintain food security.

"There should be no panic on the food situation front considering the comfortable level of food stocks that are available with the Central Government. Rabi prospects are also very encouraging. Post-monsoon rains have been good. All this augurs well for our ability to stabilise food prices at a reasonable level," he said.

Dr Singh requested the Chief Ministers of wheat-growing States to conduct a review for Rabi with the State food officials to ensure that all the necessary arrangements were in place. He said they should also plan for Kharif 2010 to ensure that all necessary inputs were tied up well in time. "These measures will help to moderate inflationary expectations and create confidence and also contribute to price stability," he said.

He pointed out that the Centre had freely allowed the import of food articles in short supply and whose prices had been under pressure. It had also discouraged or completely banned the export of these items.

He also said that the procurement prices of foodgrains had been increased significantly in recent years deliberately to provide an adequate incentive for farmers to produce more food and to sell it to government agencies for public distribution. At the same time, the Central Issue Prices for the PDS had stayed the same since 2002 to protect the more vulnerable sections of the population against the rise in market prices of foodgrains, he said.

Dr Singh also spoke of how the Government had used domestic stocks to ease pressure in the open market.

He admitted that the prices of pulses had risen much more steeply than other food articles but pointed out that here there was a more basic supply problem. He said domestic production of pulses had stagnated over the past several years, indeed for decades. The National Mission on Pulses is being set up now to address this issue.

"We have of course tried to augment domestic availability through imports, but there is very limited availability in world markets of those pulses which are consumed in our country. We have also imported yellow peas, which have reasonable global availability. These can act and have acted as a good substitute for our traditional pulses," he said.

As far as sugar was concerned, the rise in prices reflected a cyclical domestic supply shortfall. "Given the lower domestic output of sugar, we have allowed import of duty free raw and white/refined sugar. But prices abroad are higher than prices in India and this differential has therefore not allowed sizeable imports," he explained.

"We have also allowed accelerated sale of sugar processed out of imported raw sugar. We must expedite the processing of imported raw sugar and remove all impediments that come in the way. I appeal to the State Government of Uttar Pradesh to assess us in this process," he said.

"Over the medium term, we need to have an appropriate policy framework to ensure that we can successfully tackle the problem of periodic scarcity of sugar and consequential high prices in the domestic market. In this context, the role of state advised prices of sugarcane which are often much higher than the statutory minimum prices needs to be carefully and objectively assessed," he added.

NNN