Severe pandemic causes price hike of essential commodities, slumps growth

The rising food item prices are adding to woes of the post-corona lockdown recovery. The states like West Bengal, Assam or UP are in quandary as to whether allow full opening or continue with half-shut half-open measures. It is adding to the supply problems creating an artificial shortage in most places in the country. It is a double whammy. Recession has hit not only India but the entire globe. Job losses, reduction in income, fall in production are common. But in countries like India rising cost of transportation, due to the unprecedented hike in administered petroleum prices, is telling on the people. With reduced purchasing power, inflation has added not only to the problems of consumers but also of farmers. The farmer despite higher minimum support prices has not been able to get even the minimum for either wheat, corn, potato or any other produce. He is forced to sell at any available price. Since dhabas, hotels and processing plants remain under lockdown the demand for most vegetables or food grains is low. It has a direct bearing on the most farm produces. Corn, for example, fetched Rs 2200 per quintal in 2019 but this year it is difficult to get even one-fourth of the prices. So a farmer who earned Rs 20 plus lakh last year, despite better production is content with Rs 5 lakh. Similarly, potato and other vegetables see a slump. So the price for the consumer is high. The farmer, however, has earning which would not be more than what he earned last year. The expected growth on the rural strength of the economy that may have been a reality till February is not to be seen now.The farm sector is in trouble as input costs have increased manifold during the past few months. Even irrigating the fields cost more than double as the administered prices of diesel is creating new records. The people are not beneficiaries of the crash in crude prices to around $ 40 a barrel. Taxes and higher prices have acted heavily. The official view that petroleum products are used only for transportation and higher fares or freight can make up for the losses is a fallacy. Any society that pays higher fuel cost suffers more than one way. It erodes income, reduces purchasing capacity and causes overall slowdown at a time when pace in production is a must. So rising food prices, in reality, is pre-corona phenomenon. Even in December 2019, it was rising. The consumer price index (CPI) rose 14.2 percent on an annual basis. This was the highest increase since December 2013. The food price index of the UN Food and Agricultural Organisation (FA) rose 12.2 percent in December, the highest since 2017. (FA) rose 12.2 percent. The latest 20 to 40 percent rise in prices of vegetables – potato, tomato, ladies’ fingers, bottle gourds, brinjals and others are attributed to higher labour costs and 15 to 20 percent more transportation costs. Supplies have reduced by about 15 percent due to summer rains damaging the vegetable crop. The shortage of labour following the reverse migration has increased the wages of the labourers. These all reflect in the vegetable and other food grain prices. Even prices of rice and wheat have increased in the market despite a massive dole being given to the poor by the government. It is said that in about 11 states the free food grain distribution has not happened as planned. According to the ministry of consumer affairs data, 36 states and union territories lifted 6.38 lath metric tonnes (mt) of 8 lakh mt allocated under Atmanirbhar Bharat for May and June for migrant workers. Till June 30, 1.07 lakh mt, about 13 percent, food grain was distributed. Andhra Pradesh, Goa, Gujarat, Jharkhand, Ladakh, Maharashtra, Meghalaya, Odisha, Sikkim, Tamil Nadu and Telangana and Tripura distributed not more than one percent of the food lifted. The crisis has been building upon the price front since the 2019 general elections. The Food Corporation (FCI) procured 36 million tonnes prior to that in 2018, the highest since 2012-13, prior to the 2014 Lok Sabha polls. It swelled FCI stocks to 75 million tonnes – 33 million tonnes of wheat and 42 million tonnes of rice. It is estimated to be about one-third of the total production. It has been utilized well for distribution till coming November at a cost of Rs 1.5 lakh crore. But the mismatch in distribution, the market supplies and other factors have continued to add to the prices. Interestingly enough despite free supplies, the prices have not come down in rural markets either. This is intriguing. It is attributed to reverse migration causing a large influx in the rural areas. The prices of edible oils have also noticed significant rise all over. The village markets have seen a spike in locally produced oils. This has happened due to a rise in mustard and other oilseeds prices, labour costs, electricity and diesel prices. Overall expelling and freight costs have increased. The RBI in June noticed that inflationary situation has returned since April when price index surged by 8.6 per cent from 5.8 percent in March owing to price spurt of vegetable, cereals, milk, pulses, edible and sugar. The RBI monetary policy committee (MPC) says, “The macroeconomic impact of the pandemic is turning out to be more severe than initially anticipated because of supply disruptions and demand compression. The MPC says it is necessary to ease financial conditions further. It has reduced interest rates. It has hurt the depositors, senior citizens and the poor the most. In fact, cut in interest rate has not helped anybody. It has caused hardships and further reduced purchasing power of the most vulnerable classes. The high income-tax, bank charges, rude bank staff behaviour and tax on deposits are further hurting the economy. There may not be any magic wand but a soft policy approach and reduction in income-tax rates though may momentarily accrue less to the official kitty, in the long run with the health of the economy back it would be more beneficial. With a benevolent tax regime, prices too can mellow. It would reduce governance costs and add to the well-being of the country. (pic courtesy: youtube)