Finance Minister Arun Jaitley announced a series of measures to tackle food inflation on Tuesday, a day after the May wholesale price index inflation data revealed that food inflation was nearing double digits (9.5 per cent). Potato prices, for instance, rose by a whopping 40.65 per cent. This trend in wholesale prices was mirrored by the May consumer price index inflation data — retail food prices increased 9.4 per cent.
The only silver lining was that this figure was smaller, though only marginally, from that in April. Given the prospect of a bleak monsoon due to El Nino, the finance minister’s measures appear to promise some much-needed relief. Jaitley announced that Delhi would remove fruit and vegetables from the purview of its APMC act, and urged other states to follow suit. The government would offload 50 lakh tonnes of rice into the open market in order to increase supply, he said. But in a throwback to one of the BJP’s pet themes, Jaitley also sounded the alarm against hoarders and asked state governments to crack down on them. The real challenge, however, is not to smoke out “hoarders”, “speculators” and “profiteers” but to widen the market to make them irrelevant and improve supply.
For some products, farmers barely get 40 per cent of the retail price, which also dulls their incentive to respond to inflation. This is precisely why getting rid of the APMC acts is an urgent imperative. While the finance minister seems to recognise this, given the apparent political consensus for liberalising the APMC acts — Congress vice president Rahul Gandhi urged his state governments to amend them last December — he could arguably have gone further by extending the delisting to other agricultural products.
The emphasis on hoarding seems misguided for another reason. The Essential Commodities Act (ECA), which is used to target hoarding, disallows traders from holding produce in excess of a certain quantity or for more than a certain period of time. But if traders are not allowed to scale up then what incentive do they have to invest in large cold storage facilities, for example. To fight inflation, the minister needs to revisit his party’s position on the ECA and FDI, in particular.
