Union Budget 2011: FM long on announcements, short on tackling high food prices
Moneylife Digital Team 28 February 2011

Pranab Mukherjee blames supply chain problems for rising food inflation, but announces long-term initiatives that will not resolve the problem of the aam aadmi quickly enough

Finance minister Pranab Mukherjee has attributed galloping food prices to "shortcomings in distribution and marketing systems". Presenting the Union Budget in Parliament today, Mr Mukherjee also called on state governments to review the Agriculture Produce Marketing Act (APMC), which farmers say is responsible for lower prices for their produce.

The finance minister dwelt at length on the matter of inflation, however, some experts felt that the Union Budget was long on announcements, but fell short on tackling high food prices.

The finance minister said, "The recent episode of inflation in vegetables and fruits has exposed serious flaws in our supply chain. The government regulated mandis sometimes prevent retailers from integrating their enterprises with farmers. There is need for the state governments to review and enforce a reformed Agriculture Produce Marketing Act urgently."

The director of APMC Mumbai, Ashok Walunj, speaking to Moneylife said, "If he feels that there should be review, we are ready to accept whatever changes. They should have a discussion with us on the issue."

The finance minister said a decision has been taken to create 20 lakh metric tonnes of storage capacity under the Public Entrepreneurs Guarantee (PEG) Scheme through modern silos. Accordingly, 2.6 lakh tonnes of capacity will be added by March 2011, based on existing sanctions, and this will go up to 40 lakh tonnes by March 2012.

"There is a shortage of storage capacity of 32 million tonnes and even conservative estimates put the immediate investment requirement at Rs10,000 crore," said Sanjay Kaul, managing director and chief executive officer, National Collateral Management Service Limited. "The grant of infrastructure status to this sector will provide a major fillip for investment in this vital sector."

An official with an institute that tracks vegetable prices, said that "the proposal to increase storage capacity is a positive step, though the institutes-both government and private-should be more focused on their management strategies which are often faulty. For example they don't know how much would be procured and how much storage space will be needed for the produce. Hence the problems of shortage of supply and high prices."

The finance minister announced various initiatives to tackle rising food prices, topmost of them all was to boost agricultural productivity. Some of the measures are to invest in cold storage projects, build mega food parks, creating vegetable clusters,  promoting higher production of cereals like bajra, jowar and ragi and upgrading the processing technology. About Rs3,000 crore is to be provided to NABARD, in phases, to strengthen cooperative societies. "This initiative would benefit 15,000 cooperative societies and about three lakh handloom weavers," the minister said.

But expert are critical that the Budget does too little to solve the issue of food prices. Shashi Panikar, professor of economics at Mumbai University says, "The finance minister has done too little for the common man who is facing the brunt of rising food prices. Even in taxation there is no major relief. All these announcements of cold storages, food parks, are very long term in nature. They are insufficient to combat the problem of food inflation."

On the APMC issue, Mr Panikar said, "Even about the APMC Act, the finance minister only said that state government should look into it, but he did not give any road map, which is what people were expecting."

The finance minister also announced the direct transfer of cash subsidy for kerosene and fertilisers, to people living below the poverty line in a phased manner, to ensure greater effectiveness and better delivery.

Mr Kaul, CEO of National Collateral Management Service, feels that this subsidy initiative should have been extended to food subsidy as well. "The announcement to pilot test cash transfers in place of grant of subsidies for kerosene and fertiliser is another excellent initiative, but it would have been even better had this initiative been extended to food subsidies as well which currently do not reach the intended beneficiaries."

Shadi Katyal
1 decade ago
I fail to understand that hope Govt is being blamed for bad weather and thus loss of crop. Why dont we face the facts of life. We have had too many subsidies and if we have to pay the true cost of say Kerosene,Diesel,Water and even power, we will have daily riots in the streets.l
It is unfortunate that after 6 decades we are still dependent on the Govt as Nehru and his followers misled the nation that with Soviet system we will take care of the poor.but where is Soviet Union? are we going same way?
The poverty can be lowered if the GOI gets out of Permit Raj, give free hand to private industry and keep the Czar Mr. Ramesh under control.
The rest of the world is unwilling to invest in India not only due to power of the Czar but also too many road blocks and red tape. Our Labour Laws are so antiquated that no one is willing to invest as the investor feels being not a master but enslaved to unions.
We lack working ethics and discipline but we do know how to blame everything on the Govt and let Maai Baap come to our help.
We must compere our plight with other nations about inflation and prices.
If we wish to lower the poverty level we must abolish lot of ministries and bureaucrats.
I give simple example that Intel went to Vietnam with a Billion Dollars investment where even english is not prima facia language but left India as the management got tired of Red tape and bureaucrats after trying for more than a year.This year Davos has shown us where we stand compare to past few years..
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