Food (Inflation) for thought…?

Interestingly, the abnormal rise in price of fresh food items seem to have NOT made much impact, among the affected! This is a novel situation indeed. Apart from media & a few administration biggies, India at large has, somehow, chosen to remain silent on this issue. Few are asking “why”, very few in fact!

More interesting is media’s own unique answers to this virtual-reality question. Depending on the publishing group (and loyalties thereof), they vary from “no strong opposition”, “internal squabbles in BJP” to “the Telengana disaster” or “improved monetary position of the poor thanks to schemes like NREGA” etc.

Mr. Kaushik Basu, who has just taken up the mantle of India’s Chief Economic Adviser, has remarked in today’s Mint interview and I quote “Inflation is a reason for great concern”. While we agree that he’s “just” got into a hot seat, the rest of the interview, again, somehow, does little justice to his fame as an economist!

Selected excerpts:

1. …one has to remember that we do not as yet have the history of sustained growth of the kind China has had. China has done well continuously from 1978. We need to consolidate and take this performance further before we acquire some kind of insurance against downside risk. We must not forget that we still have widespread poverty in our country.

2. Enduring perpetual poverty in order to ensure that we do not face fluctuations is not wise strategy.

3. I believe this is not an inflation caused by our monetary or fiscal policies, since there is little evidence of bloated aggregate demand. That has happened in the past, that has happened in many countries. But right now in India it is a very sector-specific inflation that is taking place. Some people would even resist the term inflation. It is a relative price correction taking place.

4. …if you are handing out money to the poor, food is the sector in which the demand is going to revise most sharply. This skewed inflation may therefore not be totally unconnected to the special efforts that have been made to reach the poor—I’m thinking of the employment guarantee programme and related policies which are causing a spike in the sector….

5. A certain amount of price fluctuations are a part of economic life. There is no way to cut these out altogether. The main aim of policy must be to provide some protection to the poorest. I do not share the conservative opinion that India can’t afford to spend large sums of money on the poor. India can afford and India ought to.

I beg your pardon Sir – how do we explain co-existence of the following dichotomies in the same article? 

“little evidence of bloated aggregate demand”,

“It is a relative price correction”,

“food is the sector in which the demand is going to revise most sharply” ,

“skewed inflation may therefore not be totally unconnected to the special efforts that have been made to reach the poor—I’m thinking of the employment guarantee programme and related policies which are causing a spike in the sector” and

“main aim of policy must be to provide some protection to the poorest”

Now, let’s see what the Times Of India  had to say on the price-rise, last week:

“Did you know that there is a 400% mark-up on vegetables  in the last mile when it travels from the wholesale market — (the mandi) to the

vegetable vendor? If cauliflower, for instance, is being sold by dealers at Rs 5 a kg at the mandi, by the time it travels a few miles to the vendor its price is Rs 20-25 a kg. The poor farmer gets a fraction of this. He gets just Rs 3 from dealers at the mandi, despite his toil and risks. These figures, obtained by TOI after going backward from the vendor to mandi to farmers, revealed another stunning fact — there is no shortage of food items in the wholesale market. As a matter of fact, rates have been dropping in the past one month.
Full article at http://bit.ly/vegprices

Therefore, who’s getting benefits of NREGA? Are any of the reports “true”? Well, that’s just part of the un-asked question. I would go a step further and request you all to kindly consider a more plausible scenario, below.

As a matter of habit I discuss / chat with most people I know, from the BoP. On various issues, simply to keep myself in touch with the masses. Lately I have been asking them (many sell vegetables too) “why” are they charging such high rates in retail or paying such heavy prices. Confirming the TOI report, BoP respondents from rural / interiors appeared visibly puzzled by my queries, as none of them were experiencing any abnormal inflation!

On the other hand, each one of the urban poor seemed to have a ready answer! It’s simple – their “cost of living in most big metro cities has gone through the roof“. Consumables, Fares, even bribes! They are left with just two options : Either get into various “un-acceptable” but highly-rewarding professions like crime , drug-peddling OR charge higher rates while selling consumables from them, who CAN AFFORD IT!

(Just to drive home a point, I have uploaded a tiny PDF, the data may look familiar to YOU)

The way car-sales are up in India, they have no qualms about opting for the latter.

I am in complete agreement.

Issue is, temptation to “cross-over” is very lucrative indeed!