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Wednesday, July 28, 2021

Battling inflation

Centre must lower import tariffs and reduce excise duty on diesel instead of reinstituting trade controls

By: Editorial |
Updated: July 5, 2021 8:34:19 am
India’s annual consumer food inflation in May, at 5 per cent, stood way below the corresponding global rate of 39.7 per cent.

India was lucky last year with the monsoon, which enabled the farm sector to grow even amid a pandemic-induced economic contraction. The bumper harvests also ensured that soaring international food prices from around October didn’t translate into higher domestic inflation, barring in import-dependent commodities such as edible oils and, to an extent, pulses. India’s annual consumer food inflation in May, at 5 per cent, stood way below the corresponding global rate of 39.7 per cent. This year, however, looks to be different. While rainfall was 74 per cent above normal in May and 33 per cent in the first half of last month, the southwest monsoon has since stalled. There has been no advance of its northern limit after June 19 and the India Meteorological Department (IMD) sees no favourable conditions for revival in the next 4-5 days.

That is bad news. Mid-June to mid-July is the peak season for kharif plantings. Punjab is witnessing power outages now, as the state government is diverting supplies to farmers who are struggling to keep their transplanted paddy crop alive. They may be luckier compared to farmers in other states, where the extended dry spell has delayed sowings of not only paddy (which requires continuous standing water for 40-50 days after transplanting of seedlings), but also pulses, oilseeds and coarse cereals. The Rs 16-17 per litre increase in diesel prices is a double-whammy. For most farmers, who have no three-phase electric tubewell connections or solar pumps, irrigation using diesel engines is simply unaffordable today. A lot, then, hinges on the monsoon reviving sooner than later. One can only hope that the “negative” Indian Ocean Dipole conditions — the abnormal warming of sea waters off Australia and Indonesia, causing increased cloud-formation activity there at the expense of the ocean’s western part closer to India — do not intensify during July-September, as many global weather agencies are predicting. Even the IMD has pointed to that possibility in its July 1 forecast update.

What can the Centre do? It should, first of all, withdraw the order for imposition of stockholding limits on pulses traders and millers issued on Friday. Not only this goes against its landmark agriculture reform laws enacted in September — retail prices of pulses haven’t risen by 50 per cent plus to justify stocking restrictions — it sends out wrong signals to farmers at the time of sowing. They must actually be encouraged to plant more pulses and oilseeds, which require less water than paddy, wheat and sugarcane. The right way to address inflation is not through reinstitution of controls, but lowering of import tariffs. This should be accompanied by reducing the excise duty on diesel. That will help cool both inflation and inflation expectations.

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