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Share of food grain prices in Inflation flare up is minimal
-K. Ramasubbareddy

Inflation has crossed 12% mark and every one, as usual, pointed the accusing finger at food prices without any confirming data. A detailed analysis made by IIMK shows that increase in food grain prices is not the cause of hyper inflation. Average increase of food articles up to Aug 2008 was only 5% compared to price raise of 13.50% of non-food articles, 14% mineral oils and 15% basic metals. In fact the average inflation rate of 9 per cent recorded for food articles between December 2006 and August 2007 was much higher than in 2007-08. So much for the scare created that food grains are becoming scarce and therefore exports must be banned and traders should not be allowed in the mandis. There was of course price raise of edible oils (14.80%). The root cause of the high inflation of edible oils was larger edible oils imports since November 2007 at soaring international prices.

Over the years, India has emerged as one of the largest consumers and importers of edible oils in the world. Presently, India accounts for 10 per cent of the world edible oil consumption and 14 per cent of world imports. The per capita consumption of edible oils, which was around 7.5 kg per annum in mid-1990s, is now over 11 kg .Our dependence on imports has increased considerably over the years from 17 per cent of the consumption requirements in mid-1990s to nearly 40 per cent now .

During 2006-07, the production of oil seeds declined by 13 per cent from 27.98 million tonnes in the previous year. As the higher imports have occurred against rising international prices of edible oils, the result was higher domestic edible oils prices.

Since 2002 world edible oil prices have been gathering an upward momentum and during the last one year the prices have hit the roof. The global year-on- year edible oils inflation was in the range of 100.6 per cent to 104.3 per cent in March 2008 (over March 2007). In June 2008 (over June 2007), the same figure was in the range of 50-83 per cent. A combination of factors – higher demand for vegetable oil from the biofuel industry, an upward movement in crude oil prices and the rising demand from the consumption markets such as India and China – has been responsible for the oils market. This is despite the world witnessing higher edible oils output during the last few years. Even in the latest report on inflation  on 26th Sep 2008, it was stated that there is decline in prices of bajra, maize, masur, gram, moong, raw wool and cotton, tomatoes, onions, dry chillies, black pepper and Inflation of 30 essential commodities is only 7.74%.So what is the moral of the story?

Stop blaming high inflation on prices of food grains and essential commodities. Do not scapegoat farmers for hyper inflation. Lift ban on export of food grains and restore custom duties on import of palm oil. Restore futures trading. Take steps to increase production of oil seeds by focusing on developing improved variety of seed material, 100% seed replacement and invest more in improving dry land farming.