Having raised farmers’ expectations by promising them Minimum Support Price (MSP) which would be 1.5 times the cost of production, government will find it a ‘tight rope walk’ situation in managing the conflicting interests between farm producers and consumers, with inflation maintaining an upward trend for last six months in a row and possibly moving towards six per cent mark, that can make general households restive, said ASSOCHAM President, Sandeep Jajodia at an ASSOCHAM Managing Committee meeting held in New Delhi yesterday.
While RBI in its credit policy commentary has said that it is yet to assess the impact of increased MSP on retail inflation, impact would be clearly seen, especially on cereals and other foodgrains like wheat and rice. Despite inflation, measured on the Consumer Price Index (CPI) being pushed up by items like vegetables, eggs, fuels etc, the level of price rise has remained muted for cereals (2.57 per cent year on-year for December,2017) while pulses had seen a huge drop, bringing down the overall headline inflation.
“Going forward, that situation cannot sustain and farmers, growing pulses, for instances would have to be protected along with ensuring adequate remunerative prices for wheat and paddy. Therein lies the problem. With vegetables and fruits having seen notorious gyrations in prices, the overall CPI inflation may well cross even the limit of four per cent by the RBI,” said Jajodia after discussing the issue with ASSOCHAM Managing Committee, the top policy making and governing body of the chamber.
The chamber said while the RBI has an elbow room of plus or minus one/two percentage points from threshold of four per cent, “The question remains whether the consumers, especially those vocal in urban India, would bear with government and buy the argument that farmers have to be protected. Besides, even within rural India, there are more of landless workers than land owners growing grains. The entire rural population, especially those earning wages, have to be protected against inflation, which is considered to be a painful tax on the poor. For instance, according to the December 2017 CPI data, the Consumer Food Price Index for rural areas was higher at 5.08 per cent than 4.71 per cent for the city dwellers.”
ASSOCHAM chief also said that country would soon be in an election mode, first for key states like Madhya Pradesh, Chhattisgarh and Karnataka and then the general elections in 2019. “The budget with a huge focus on agriculture has raised expectation level in rural landscape. Besides, entire national discourse has shifted to problems of rural India. Government would find it very difficult to adjust MSPs which do not appear to be in line with promises. Even the formula for costing is being debated in media and among agricultural economists and farmers’ organisations. That means the pressure on retail inflation is bound to be seen.”
The apex chamber added that it is going to be the most challenging times for the policymakers. Recent two examples illustrate dilemma before the government. Despite onion selling at Rs 40-50 a kg, the government had to lift export control on it to protect the growers. Similarly, import duty on sugar has been doubled to 100 per cent along with other measures like strict enforcement of stock limits for sugar mills. “The ministries of Food and Consumer Affairs, Agriculture, Commerce, Finance and the PMO would need to be keeping a strict vigil on maintaining a balance between interests of growers and consumers. What makes the situation difficult is that at this point of time, both have become vocal.”
As the RBI has highlighted in its credit policy document, households’ inflation expectations, measured by the Reserve Bank’s survey of households, remained elevated for both three-month ahead and one-year ahead horizons even as inflation expectation for one-year ahead horizon moderated marginally. The RBI said that inflation outlook beyond current year is likely to be shaped by several factors, including crude prices.