Sunday, February 27, 2011

Food inflation perhaps not as bad as we think it is.....

All of us are concerned with the high inflation numbers. Overall inflation is upwards of 8% and is only expected to moderate to 7%. More concerning is the food inflation which touched as much as 18-19% some time back and even now is hovering around 12-13%. Typically, we think of this as a ghastly thing that harms the poor and the rural folks the most. Think again.

It is indeed true that food inflation is hurting people. Most of all, urban folks like us. So veggie prices have gone thru the roof and fruits are almost unaffordable. But since no one would really care too much about us “well-off” types, the story is projected as hurting the poor. Now we must distinguish between the urban and the rural poor. So let’s take a closer look at the inflation numbers.

It appears that rural folks – especially those who are really poor and landless – usually mostly limit their meals to cereals of different types. Even those who are the poorest of the poor – and covered under the NREGA scheme and have got at least a little bit of money in their hands – stick to cereals. Here’s the surprising news. Cereal prices are under check. In fact, as an expert mentioned on TV recently, inflation in cereals is lower than normal. So that’s good news. On the one hand, the poor have NREGA as an income source, and on the other, the inflation is in check. The really poor rural are managing just fine! Now let’s look at the farmers in the rural areas. Those who own land and are employed in agriculture. The fact is that they are the ones who have been continuous beneficiaries of the government’s policy of raising Minimum Support Prices (MSP) every year. MSP is the price the government pays to pick up agricultural produce. So with annual increases in MSP, the farmers are doing just fine. Over the last 6 years, as mentioned in President Patil’s speech recently, the MSP for wheat and rice has nearly doubled. All this is money in the hands of the farmer.

So why is it that us urban folks are feeling the heat. The fact is that as the farmers are making more, so are the distributors in between and eventually the retail fruit and veggie vendor who you buy from. Every time we end up paying more, the entire “food chain” benefits. The vendor, the distributor and the farmer. Agreed, the distributor and the vendor benefit more than the farmer and that’s where most media criticism of government inaction has been directed. But make no mistake....the farmer is a beneficiary too. Is it possible to change the distribution of this inflation led earnings growth? Sure it is. That’s the argument for allowing big organized retail to get into agricultural products as well. Cut the distributors out to the extent possible and pass on more to the farmers. Organized retail would set up the cold chain that would also prevent crops from rotting. But does anyone really support this politically. No chance! No one really wants to understand the issue.

Coming back to us urban folks, we are the ones who end up paying more. But then shouldn’t we? On average, our salaries have risen by 15-20% every year for the last 20 years since economic liberalization was started in 1991. It’s a fact – and we know it better than anyone else – that we are earning ever more salaries every year. Do we do anything to share this with the poorer sections at all? Usually not. Except for the taxes which most of us grudgingly pay (We pay....but we complain....and we justify our complaints by saying that we don’t get to see the benefits). Inflation is a way by which we are forced to part with a small part of our monies!

The ones to get really hurt are the urban poor. They have no NREGA benefits and they get no salary increases. Inflation squeezes them really hard....they are forced to cut back on nutrition and lower their health. It leads them to crime in a way to make ends meet. They are the ones who are the real victims.

The real truth is that us urban folks who are well off shouldn’t complain about inflation. Each one of us who earns a decent salary (and don’t smirk and say you don’t!) should try and take care of 2-3 people who work in our sphere of influence. I do so with my drivers and maids. I pay one driver’s kid’s education bills and whenever there is a medical emergency in anyone’s family, I pay for the medical bills. I’ve learnt to do this. I have been inspired by others who I have met. I would urge each one of you to willingly part with money. If not time. After all, we can’t be a proud country if we cannot bridge the economic disparity that we see all around us.

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