In this article we will discuss about the Recent Measures to Contain Food Inflation in India. After reading this article you will learn about: 1. Measures taken to contain Food Inflation during 2010-11 2. Measures taken to contain Food Inflation during 2011-12.
Measures Taken to Contain Food Inflation during 2010-11:
The following are some of the measures taken by the Government for containing inflation, especially food inflation during 2010-11:
(A) Monetary Measures:
As part of the monetary policy review, the RBI has taken suitable measures to moderate demand to levels consistent with the capacity of the economy to maintain its growth without provoking price rise. It has already raised its key policy rates several times and has narrowed the liquidity adjustment facility (LAF) corridor to reduce volatility of rates.
The economy has witnessed aggressive tightening since March 2010. As per the announcement of the RBI on 25 January 2011, the repo rate and reverse repo rate are 6.5 per cent and 5.5 per cent respectively.
(B) Fiscal Measures:
1. Import duties reduced to zero in rice, wheat, pulses, edible oils (crude), butter, and ghee and to 7.5 per cent on refined and hydrogenated oils and vegetable oils.
2. Import of raw sugar allowed at zero duty under open general licence (OGL).
Measures Taken to Contain Food Inflation during 2011-12:
As price stability remains high on its agenda, the government monitors the price situation regularly. Measures taken to contain prices of essential commodities include selective ban on exports and futures trading in food grains, zero import duty on select food items, permitting import of pulses and sugar by ‘PSUs, distribution of imported pulses and edible oil through PDS, and release of higher quota of non-levy sugar.
In addition, state governments, are empowered to act against hoarders of food items by holding in abeyance the removal of restrictions on licensing, stock limits, and movement of food articles under Essential Commodities Act, 1955.
The following are some of the measures taken by the Government for containing inflation, especially food inflation during 2011-12:
A. Fiscal Measures:
1. Reduced import duties to zero for rice, wheat, onion, pulses, edible oils (crude) and to 7.5 per cent for refined and hydrogenated oils and vegetable oils.
2. Permitted National Dairy Development Board (NDDB) to import 50,000 tonnes of skimmed milk powder and whole milk powder and 15,000 MT of butter, butter oil, and anhydrous milk fat at zero duty under tariff rate quota.
3. Permitted the State Trading Corporation of India (STC)/Minerals and Metals Trading Corporation (MMTC)/Project Equipment Corporation (PEC) and National Agricultural Cooperative Marketing Federation of India (NAFED) to import duty-free white/refined sugar initially with a cap of 1 million tonnes. Later duty-free import was also allowed by other central/ state government agencies and private trade without any cap on quantity.
B. Administrative Measures:
1. Removed levy obligation in respect of all imported raw sugar and white/refined sugar.
2. Banned export of edible oils (except coconut oil and forest-based oil) and pulses (except Kabuli chana and organic pulses up to a maximum of 10,000 tonnes per annum).
3. Imposed ban on export of non-basmati rice and wheat for short period of time.
4. Permitted export of edible oils in branded consumer packs of up to 5 kg subject to a limit of 10,000 tonnes.
5. Prohibited export of milk powders (including skimmed milk powder, whole milk powder, dairy whitener, and infant milk food), casein and casein products.
6. Effected no changes in tariff rate values of edible oils.
7. Ban on export of onion was imposed for short period of time whenever required. Exports of onion were calibrated through the mechanism of minimum export prices (MEP) of onion.
8. Maintained the central issue price (CIP) for rice (at Rs 5.65 per kg for below poverty line [BPL] and Rs 3 per kg for Antyodaya Anna Yojana [AAY] and wheat (at Rs 4.15 per kg for BPL and ? 2 per kg for AAY) since 2002.
9. Suspension of futures trading in rice, urad, and tur.
10. Ten lakh tonnes of wheat and 10 lakh tonnes of rice allotted under the Open Market Sale Scheme (OMSS) and 15 lakh tonnes of wheat for bulk sale, including sale to small traders for the period October 2011 to September 2012.
11. An additional ad hoc allocation of 50 lakh tonnes of food grains made on 16 May 2011 to all states/ UTs for BPL families at BPL issue price for distribution during the current year up to March, 2012.
12. In addition, ad hoc allocation of 50 lakh tonnes of food grains made on 30 June 2011 to above poverty line (APL) families raising thereby monthly APL allocation up to 15 kg per family per month in 20 states and 35 kg per family per month in 4 north-eastern states, Sikkim, and 2 hilly states of Himachal Pradesh and Uttarakhand where it was less than that quantity for a period of ten months from June 2011 to March 2012.
13. Extended the Scheme for distribution of subsidized imported edible oils through state governments/ UTs with subsidy of Rs 15 per kg for distribution to ration card holders at 1 litre per ration card per month.
C. Monetary Measures:
As part of the monetary policy review stance, the RBI has taken suitable steps with 13 consecutive increases in policy rates and related measures to moderate demand to levels consistent with the capacity of the economy to maintain its growth without provoking price rise.
As per the most recent announcement of the RBI on 24 January 2011, the cash reserve ratio (CRR) has been cut by 50 basis points (bps) from 6 per cent to 5.50 per cent and repo rate and reverse repo rate have remained unchanged at 8.5 per cent and 7.5 per cent respectively.
Future Strategy to Curb Inflation:
Under the present situation what in required is the “timely decision” by the Government to contain inflation and maintain price stability while putting the country’s economy on to a high trajectory. It is of paramount importance for the Government and the Reserve Bank of India to maintain price stability and keep the money supply a shade below sixteen per cent.
The Government should have necessary intention to keep inflation within manageable limits, because inflation rates of six to seven per cent must be expected as they are consistent with the growth pattern.
The International Monetary Fund (IMF) in its “World Economic Outlook”. (1997) cautioned India against the possibility of inflation and slow growth this year, urging reinforcement of process of economic reforms to reverse the negative trend in the interest of her growth.
Referring to the recent spurt in inflation faced by the country during the last phase of 2007-08 and the first phase of 2008-09, the IMF reports on global and regional economy observe that inflation is on the higher side and requires immediate attention.
The IMF observer of Asia-Pacific stated that “at 7.5 per cent (inflation in India) it may not seem very high but politically it is a hot issue. It was mainly due to food, fuel and some metals. It was critical to deal with the issue of inflation before it becomes entrenched and spills over.”
An econometric analysis of money demand stability by the Development Research group of Reserve Bank of India observed that inflation control will continue to be the dominant concern of monetary management. With globalisation, there will be greater pre-occupation with the need to harmonies fiscal, monetary and exchange rate policies.
Hence, the RBI will have to play an even more important role as the economy moves along the path of financial sector reforms. The study shows that the growing links in the markets for money, capital and foreign exchange rate make this a challenging task. As the economic environment changes, the instruments of monetary policy might be wielded differently.
However, it would be absurd to imagine that monetary measures alone will provide solutions to the problems of economic growth, inflation and unemployment. Inflation in India is not solely a monetary phenomenon.
Shortfalls in essential commodities, import costs and so on do have strong inflationary effects. In such a situation, monetary policy has an important moderating role, supporting fiscal measures to hold the price line.
In order to contain this present trend, the Government should determine its price strategy in the most rational manner so that it can boost investment and production and make a frontal attack on the inflationary rise in prices.