Needed: Amul II; a national grid to fix food inflation

Inflationary elation followed by deflationary dejection.

Inflationary elation followed by deflationary dejection. The Rajan Effect has run through its first lap. India’s hope brigade completed another expectations cycle—price inflation deflated hope inflation.

Rising inflation is the reflection of an institutional crisis in the manner in which India manages the demand side and the supply side of the economy; how the government manages its income and its expenditure; how the government enables availability and affordability. The tussle in the tent is really between political ambitions and individual aspirations. At one end of the spectrum is the widening chasm between government income and government expenditure. The abiding faith in the political system is that governments must create private incomes or subsidise consumption. On the other side of this simultaneous equation is a glaring inability to invest in the supply side for growth.

Look at the state of affairs. CPI has averaged over 11 per cent since 12 months and half of this is food price inflation. On WPI, food inflation has raced in double digits—last month it galloped at 18.8 per cent. Such is the ferocity of price rise that food malls have changed price labels from per kg to per quarter kg. The government says food inflation is seasonal. How can a perennial grief be seasonal? This regime now has a legion of ministers who have forecast fall in prices and failed. Its credibility is peeling away like layers of onion. With too many entitlements reaching too few beneficiaries and too many people chasing too few goods, inflation is hardly a surprising outcome.

What is surprising though is how consistently government is getting it wrong. The deployment of interest rate hikes—13 times in one stretch—has been a spectacular failure. Again, not surprising in the least! There are two reasons. When government borrowings double to Rs 1,600 crore per day in four years, there is little that monetary policy can achieve. Second, food price inflation is nearly half the story in consumer price inflation. And, interest rate hikes as an instrument are blunt when it comes to food price inflation. While overall fiscal deficit is locked in competitive entitlement raj and demand side pressures of vote-bank politics, food price inflation can be curbed if the government invests its attention on solutions.

The crux of the problem is located in poor distribution and pathetic state of storage (which aggravates wastage). In a country where nearly a quarter of the populace cannot eat two square meals, food worth nearly `40,000 crore is wasted every year since the past 10 years. That is, nearly twice the income tax collected from individuals or nearly as much corporation tax that will be collected from companies this year. This is simply unsustainable and morally indefensible. The issue of viability is about saleability and availability is what dictates the matrix of affordability.

This is not a new situation for India. Six decades ago, India was similarly stuck on milk production. It took a one-man army led by Dr Verghese Kurien to liberate India from milk import dependence—his initiative set up in Anand took India from 17 million tonnes per annum in 1960s to 120 million tonnes today. And his solution was based on a simple formula: income for the farmer, affordability for the consumer.

What India needs is a second Operation Flood, Amul II to create a national grid for perishables. The design can be roughly based on what was successfully done for milk production. Create a supply chain from the fields to homes. The critical element here is empowerment and investment. The rough contours could be as follows. Village panchayats could be designated as collection centres. Each village or a group of contiguous villages could be funded to set up a cold storage or to buy two cold storage vans.

The collection—in quantity and kind—could be registered on an online exchange. The produce listed on the exchange could be bid for by registered traders across the state and country. The exchange would provide farmer groups real-time pricing, a platform for the trade and act as a guarantor of supply and payment. The produce could either be collected from the panchayats or delivered by them to a district collection centre. Thereon, both private and public procurers could move the produce to the markets.

Governments have waxed eloquent about empowering farmers. Here is an opportunity that will help resolve a serious crisis in the economy. It could be managed through farmers’ cooperatives—in states like Gujarat and Maharashtra—or through the elected panchayats. It would eliminate usurious credit practices, the exploitative middlemen and criminal wastage of scarce produce. The farmer will be assured of fair prices, additional income and the economy—and consumers—will be insured from “inflationary seasonality” in food prices.

It can be done. The question then is why is India not learning from its successes? The answer lies in another question: where is the political vision for solutions that deliver greater common good?

Shankkar Aiyar is the author of  Accidental India: A History of the Nation’s Passage through Crisis and Change

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