The Great Indian Price Rise
By Ayush Prasad
Feb 10: Mrs. Kapoor a home-maker in Delhi is complaining that her household budget for the month has gone up several times in the last one year. She says that she cannot afford to buy food items like Sugar and Pulses. The Kapoor family has been forced to do away with Dal, which adored their table for every lunch and dinner. Mr. Kapoor a government servant is blaming the government for this crisis. He smells corruption and black marketing, though he cannot explain where the hoarders are sending the food items given that India is the only consumer of pulses like Dal and without exponential boom in new cold-storages, why would a black marketer waste the food items rather than sell it. The 24X7 News Channels and the news papers are filled with stories of the price rise and how it has affected the lives of millions of people in the country.
The Government remains defiant and not doing anything, something rare in a parliamentary form of government, as its survival is dependent upon the happiness of the electorate. The impression being created is that the entire nation is unhappy. Dr. Tiwari, Chief Medical Officer at a Private Hospital has also mixed feelings as there is a sudden drop in patients. Most of the patients who visit his hospital are Urban Middle Class, with the most common ailment of heart diseases. This is triggered by obesity and high sugar levels, as Indians love having tea multiple times during the day. With the rise in sugar prices, people are forced to have sugarless tea, reducing the number of patients who visit Dr. Tiwari’s hospital.
Sharad Pawar, the Union Minister for Agriculture is a troubled man. He is being blamed for the food prices from all parties, the opposition and the ruling. BJP the main opposition party plans to have a three phase protest over it, culminating in the circumcising the Parliament in Delhi in protest to the rising food prices. This is a major issue for BJP, which wins most of its seats in urban areas, but since reorganization of seats, there are more seats in urban than in rural areas, no party can afford to ignore the issue. The Marxist (CPI, CPI-M) and the Socialists (Samajwadi Party, sans “Capitalist Garbage” Amar Singh”) all have taken on the Government on this issue. During a recent conference of Chief Ministers, all the opposition Chief Ministers was gunning for the Union Government. The Central Government said that Agriculture was a State Subject (issues of Governance has been divided into Union and State Subjects).Committees were formed and the meeting ended with strong sound bites for the media.
But in all of this, have the prices actually increased ?
The overall inflation (rise in prices of 60 essential commodities like food, fuel etc) is very low around 3%, but the food inflation is around 20% in the whole sale market. This essentially means that people have less money to spend on Movies and Clothes; food dominates almost 60% of household budget. Rice which was INR 10 in 1998, INR 13 in 2004 is being sole at INR 23 today. The price of wheat has doubled, while that of sugar has trebled. The consumption has only grown marginally, with the rise in population, so why have the prices grown? Is the Aam Aadmi suffering in the process?
India has precisely 6, 38,201 villages, where 72.2% of the population lives (have their homes where they live, they may travel to towns everyday or during the week). Over 60% of them are directly dependent on agriculture. The Government has a belief that higher prices benefit this segment of the electorate. Any party which manages to win the confidence of 72% of the population would win at least 460 seats in a 545 member house and can be absolute rulers, changing the constitution which requires 66% of the votes in parliament etc.
If one looks closely at the reason behind Indian Economy remaining Recession Proof during the Global Economic Crisis, is precisely because of the rural economy. Items like Cars, Tractors, TV, Fridges, Microwave Owens, and Mobile Phones etc sold in bulk keeping India Booming, during this period. Showrooms selling SUVs and Luxury Brands have come up in relatively well of regions of the rural areas- Rural Punjab and Haryana. This is an indicator that there is prosperity in the rural sector. The Idea of Sonia Gandhi for re-distribution of wealth under her brain child NREGA seems to be having its effect, with the Side Effect being Price Rise. The idea basically is to tax the rich and give that money to poor, not as charity but as source of work.
The Urban India’s rise in income due to globalization and the 6th Pay Commission is one of the reasons for Price Rise. While the 6th Pay Commission has doubled the salary and Pension in the hands of almost 2 Crore Government employees, the private sector has been more lavish in hiking salary. The subsidy in fuel and other essential commodities ensured more disposable income in hands of young persons, which fuelled consumption. India has almost 35% of the population below the age of 30. This segment is averse to saving much money instead spend money creating their new households.
Hence malls are crowded all the time. Consumption includes eating in restaurants to buying rice and wheat in well packed packets rather than measuring and taking home in plastic bags from grocery shops. As people became wealthier they wanted to buy better quality products which in turn led to the requirements of better quality produce, forcing farmers to take up plantation of crops which are of good quality. Hence slowly farmers only produce food grains which are of good quality rather than the ordinary quality produce which was prevalent earlier. An example of this would be Indian Cotton. The thread of Indian Cotton used to be only 3 inches as compared to 7 inches to the ones sold in International market. The textile industry requires longer threads. As foreign made clothes began to flock Indian markets, the farmers were forced to produce longer thread cotton to stay in competition.
There has also been an improvement in the agriculture facilities being provided to farmers. Drip Irrigation has replaced Flood Irrigation, which has made better utilization of available water. We read about toddlers falling into bore-wells, an indicator that ground water is been extensively used for agriculture. This has reduced the monsoon dependence on agriculture. The irrigation schemes have helped, as in spite of 232 districts (almost 33% of India) being drought affected, the output of crops was not affected.
There has been extensive shifting of people from cultivation of essential crops like rice & wheat to cash crops which can be exported and is sold at a higher price. There is mixed cropping of vegetables which require shorter growing time, which have helped boost incomes. But this is a dangerous trend. Rice and Wheat may become extremely expensive unless the yield is increased. The yield of most crops in India has remained constant, while the population has increased, with lesser land on which it is grown, automatically creates a scarcity and demands imports which have been taking place, over the last few years.
India is no longer self sufficient in food grains. Former Prime Minister Atal Bihari Vajpayee launched a scheme called Prime Minister’s Rural Road Scheme. Under this scheme all villages have been provided with motor able roads, which have improved connectivity and transportation. This has allowed farmers to indulge in cultivation of perishable commodities like milk and vegetables.
This has further driven up rural incomes as vegetables are sold at a higher price and has a much shorter growing time, hence during one season a farmer can produce multiple of these crops .
Union Government has also launched an initiative called State Wide Area Network has provided internet connectivity to rural areas. A Union Government owned company’s Product e-Chaupal reaches 3.5 million farmers, across the country giving them instant access to data on new variety of crops, pricing of crops and markets. This reduces the profits of the middlemen and the farmers are able to get a better price for their crops. If rice is being sold at INR 25 in Delhi, a farmer producing that in Punjab would have earlier be selling it at INR 7 but now commands at least INR 19, which adds to his income. Communication has further been improved by the widespread use of mobile phones.
Grameen Bank in Bangladesh introduced the concept of Micro-Credit, which has been implemented in India. Agriculture loans provided by Public Sector Banks have low interest rates and are meant for particular purchase which has helped farmers improve his implements. Though there can be improvements in the loan schemes and the reach these units have in the rural economy.
In areas around the Urban Areas, including the B Grade (Belgaum, Mangalore) and C Grade (Udupi, Kundapur) Cities, farmers have sold their land to the real estate boom and Special Economic Zones yielding high profits.
NREGA has had multiple effects on the life of farmers, especially his income. In states where the scheme has been implemented well, people get 100 days of work during the off season of agriculture. The price for labor has been much higher than the existing labor prices. They also paid women and men equally which meant more women work, giving them more confidence, so lesser domestic violence. This also means that people demand more salary for any other work they do. This increased labor costs means the cost of production of crops go up and so does the demand of mechanized devices like tractors. This leads to increase in price of crops.
All this factors contributing to higher income levels in the rural labor leads to increase in consumption. The pyramid of needs says that the food is basic to all human necessities and is seconded by clothing. So as people got money, they are buying more food. The farmers who never dared eat Dal are now consuming it. The essential items which were earlier cooked have new guests on the table which include, sweets. This is a good thing in the fight against hunger.
This was an aim of Independent India. All Indians will have similar lifestyles. We can now expect a rise in prices of clothes in India, so in the next few years designers who can make affordable clothes which are wearable for the rural masses can expect to do good business.
Effects like not getting domestic help in urban areas are already becoming common. The migration to urban areas would reduce, forcing employers to go to smaller centers to start business. The markets would become more spread out. This would mean that regional imbalance would be eradicated and more people can be taken out of poverty, as long as there is a real growth in income, fuelled by industrialization, exports and bringing out of the hidden wealth of rural India into the organized economy.
The UPA Government under Dr. Manmohan Singh also hiked the procurement price for food grains, which in-turn also led to the food price hike. By investing INR 1,25000Cr every year for the last six years, rural India is getting the benefits of development which were limited to Urban India. This has forced banks to set up rural centers in villages and small towns. The Papers are filled with advertisement for jobs in the rural sector. This economic growth will lead to other improvements like increased levels of literacy, lower urban migration and improvement in rural infrastructure.
But, is this rise in price an angel without a hint of devil. Well this rise in price is also because India wastes 70000 tons of food items, in storage and transportation. The debate about Bt-Brinjal continues that we are being made into lab rats, but it would be resistant to Insets and Pests, which is a major cause of wastage in the vegetable.
Though the tests have not been conclusive about the effect on human begins, but it will reduce wastage. In addition to it, Public Distribution System, which is supposed to be providing Rice at INR 3 to poorest of the poor in India, is a wholly corrupt organization which needs to be overhauled. There is no increase in the yield in
Indian farms, though China shows an increase in yield every few years.
But, today due to the high prices are people suffering? Yes, the urban poor are suffering. India has urbanized rapidly. It has the world’s largest slums. The people living in these slums are suffering greatly. Prices can be brought down by using the buffer stock which the government keeps as a source of food security, by importing the food grains and by subsidizing the food. Food prices must be brought under control.