Cut food, fuel and fertiliser subsidies to help the poor
A discussion paper from the Commission for Agricultural Costs and Prices brings out some obvious and some not-so-obvious factors behind India's persistent food inflation. For one, the combined fiscal deficitof the Centre and the states has a major impact on food prices.
The ongoing fiscal correction will, therefore, help tamp down this kind of inflation. Moreover, sharp cuts in hugely inefficient subsidies that bloat the fiscal deficit will actually serve to slash the price rise that hurts the poor.
In politically incorrect terms, please cut food, fuel and fertiliser subsidies, if you want to help the poor. Food grains are only about 7 percentage points of the food basket that has a 24 percentage weightage in the wholesale price index.
Mismanagement of our grain stocks has allowed grain prices to go up, but the real culprit infood inflation has been protein foods, whose share in food demand has gone up from a quarter to a third over the last five decades, besides fruit and vegetables. Of the lot, only pulses are easy to store.
The rest require climate-controlled storage, efficient logistics sans idiotic restrictions such as those imposed by the APMC Act. Rural power is a hurdle for food inflation. Farm wages are another factor. These have been rising, in real terms, thanks to employment guarantee schemes, a boom in construction and farm growth in some states.
Higher real rural wages remove poverty and raise the demand for superior foods but serve as a cost-push factor, raising minimum support prices. Productivity rise through mechanisation is the answer. The third major correlate is global food prices, which have been upwardly mobile as well. Instead of shutting India out, we need to invest to remove bottlenecks to raise our farm output, to meet domestic and global demand.
The ongoing fiscal correction will, therefore, help tamp down this kind of inflation. Moreover, sharp cuts in hugely inefficient subsidies that bloat the fiscal deficit will actually serve to slash the price rise that hurts the poor.
In politically incorrect terms, please cut food, fuel and fertiliser subsidies, if you want to help the poor. Food grains are only about 7 percentage points of the food basket that has a 24 percentage weightage in the wholesale price index.
Mismanagement of our grain stocks has allowed grain prices to go up, but the real culprit infood inflation has been protein foods, whose share in food demand has gone up from a quarter to a third over the last five decades, besides fruit and vegetables. Of the lot, only pulses are easy to store.
The rest require climate-controlled storage, efficient logistics sans idiotic restrictions such as those imposed by the APMC Act. Rural power is a hurdle for food inflation. Farm wages are another factor. These have been rising, in real terms, thanks to employment guarantee schemes, a boom in construction and farm growth in some states.
Higher real rural wages remove poverty and raise the demand for superior foods but serve as a cost-push factor, raising minimum support prices. Productivity rise through mechanisation is the answer. The third major correlate is global food prices, which have been upwardly mobile as well. Instead of shutting India out, we need to invest to remove bottlenecks to raise our farm output, to meet domestic and global demand.
Morgan Stanley expects government to meet its fiscal deficit target
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US investment bank Morgan Stanley expects the government to meet its fiscal deficit target of 5.2 per cent of GDP, by deferring payments.US investment bank Morgan Stanley expects the government to meet its fiscal deficit target of 5.2 per cent of GDP, going by the trend during April-February'13.
However, this would be possible only by deferring payments of fertiliser subsidy. Hence the underlying fiscal decit would be 5.4 per cent of GDP.
"Given the government efforts to control fiscal deficit in Apr-Feb, we believe that government would be able to report fiscal deficit at 5.2 per cent of GDP," noted a report by Morgan Stanley.
" However, we believe this would involve some deferment of fertilizer subsidy payments and thus underlying fiscal deficit trend would still be at about 5.4 per cent of GDP."
The US investment bank expects that for FY'14, the government is likely to stay on the course of fiscal consolidation, cutting deficit further by 0.4 per cent of GDP, primarily helped by increase in revenue to GDP.
However, this would be possible only by deferring payments of fertiliser subsidy. Hence the underlying fiscal decit would be 5.4 per cent of GDP.
"Given the government efforts to control fiscal deficit in Apr-Feb, we believe that government would be able to report fiscal deficit at 5.2 per cent of GDP," noted a report by Morgan Stanley.
" However, we believe this would involve some deferment of fertilizer subsidy payments and thus underlying fiscal deficit trend would still be at about 5.4 per cent of GDP."
The US investment bank expects that for FY'14, the government is likely to stay on the course of fiscal consolidation, cutting deficit further by 0.4 per cent of GDP, primarily helped by increase in revenue to GDP.
"We expect national fiscal deficit will reduce from 8.2 per cent in F2012 to 7.5 per cent in FY'13 and further to 7 per cent in FY'14." it said
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