Economic Highlights
New Delhi,
20 November 2009
High Food Prices
NO MONEY LEFT FOR
GOODIES
By Shivaji Sarkar
The common man may not get to enjoy
the benefits of India’s
projected stellar show as food inflation has reached alarming levels of almost 14
per cent (13.68 per cent). The figures show that prices have been rising every
week robbing people of their purchasing power. It has a direct impact on the
industry and a fall-out on tax payments.
The indirect tax collection,
according to official figures, has hit the Government once again. It has
dropped by 21 per cent – Rs 1.21 lakh crore during the first seven months of
the financial year against Rs 1.61 lakh crore a year ago. This may lead to a severe
budgetary crisis and the Government may remain far off the target in revenue
collection.
It is not the first time that
indirect tax collections are falling. It has been dropping for over a year.
In December last too, it had taken a hit
of Rs 40,000 crore. Clearly, this is a pointer to a grim situation. Tax
collections increase during a buoyant economic phase. Indirect taxes comprise
excise, customs and service tax. A fall in the collection reveals that
activities in almost all the spheres of economy have slowed down. Indirect
tax revenues have taken a big hit due to lower imports and a sharp fall in
excise duty revenues. The decline in these taxes, on both the customs and
excise duty front, must be a source of concern for policymakers.
A
part of the fall is attributed to the stimulus package granted to the industry
in tax sops. But that the slowdown is continuing is evident from a lower
collection in service tax ( 5.4 per cent) at Rs 28,926 crore. Service tax
signifies the purchasing trend and the present level of collections indicate that
far fewer people are going out for shopping.
Customs
duty declined by 31.8 per cent at Rs 45,412 crore indicating lower imports.
Excise duty collection was also down by 18.8 per cent at Rs 52,566 crore. Clear
trends that the stimulus is not working and the slowdown continues. The Government
may not agree that this is linked to high prices. But the items of daily consumption like
potatoes and onions have been primarily responsible for pushing the food
inflation up. This is because the two items are the staple food, particularly
the poor. On an annual basis, the prices of potato have doubled in a year, whereas
onion was expensive by 43 per cent and pulses by 23 per cent, according to the
wholesale price index (WPI).
The
wage hike given by the Government is regrettably not helping to revive the economy
as the outflow of incomes has increased to sustain the family. A World Bank
study in nine low-income countries - Pakistan,
Vietnam, Peru, Cambodia, Nicaragua, Malawi, Zambia, Madagascar and Bolivia - shows that
the recent large increases in food prices are likely to raise overall
poverty. A particular reason for the concern about the impacts of high food
prices on poor countries arises from the fact that the poorest people spend
roughly three-quarters of the their income on staple food.
World
Bank President Robert B Zoellick has recently said that the crisis of surging
food prices could mean “seven lost years” in the fight against worldwide
poverty. The bank’s study should be true for India as well. But it seems that
the Government does not have an effective policy to tackle the issue. Food and Agriculture
Minister Sharad Pawar’s statement that prices would continue to rise speaks of
a mindset i.e. nobody is serious about
bringing down the prices. Many of our political leaders represent lobbies and couldn’t
care much about the poor in a country where an average family spends 60 per
cent of its income on food. And, the poorer spend 80 per cent of their income
on food.
If
all the income goes into buying food, other sectors of the economy have to take
the hit. This is exactly what is happening. Adhering to the principles of a market
economy is all very well but it has been observed that the market thrives when there
is easy and affordable food availability. This is what the country witnessed
for a few years till 2004.
Till
such time the public distribution system (PDS) had remained universal. Soon the
situation changed. It was restricted to the below poverty line people and the
rest of the PDS was gradually demolished, the Government lost an important
intervening tool. Else how would it justify what it claims as a comfortable
buffer stock, and the surging market prices?
A
free economy does not mean abdication of the duties by the Government. On the
contrary, it imposes on it the duty to regulate and effectively oversee the
prices so that the system does not go awry. In the Indian context, the Government
wants to get out of all those responsibilities for which the State itself was
formed. Reneging on these basics would not only create problem for the
projected growth but also might lead to anarchical situations as the anti-price
rise demonstrations, sugarcane farmers protest, suicide by families and Maoist
violence has so far indicated. This is how Somalia has gradually got into its
present lawlessness.
The
Government has to effectively and strongly intervene to bring down the prices
not only as a poverty alleviation measure but also to boost the industry by way
of generating a demand. Food prices should not be treated in isolation. For at
the end these decide the basic industrial pricing strategy, wages and demand
generation, which are vital for the sustenance of both industry and trade. The Government
is keen on high growth trajectory. It can be achieved only if the prices are
affordable.
Indeed,
the Government has to recognize the threat of high food prices. It must usher
in a regime wherein these do not
threaten the economy. Can this be achieved? Only if there is a political will. The
next big question is: Do we have it?---INFA
(Copyright, India
News and Feature Alliance)
|