UPA Government’s conflicting approaches

Tag : Cereals And Pulses


The prospects for the 2008-09 agricultural season commencing onJuly 1 are being carefully assessed in government, the PlanningCommission, industry and farm circles. There is anxiety to knowwhether the uptrend in output of food and cash crops witnessed inthe previous three seasons will be sustained.
A further improvement in food and cash crop yields is consideredimperative as prices of agricultural products and crude oil aresoaring in world markets and the Indian economy has to be insulatedto the extent feasible from external inflationary pressures. Theall time record of 227.3 million tonnes for foodgrains in 2007-08has enabled the Agriculture Ministry to procure large quantities ofwheat and rice through the Food Corporation and State agencies.This has enabled significant additions to buffer stocks afterproviding for a larger offtake through the public distributionsystem and under the various programmes of the Central and Stategovernments. Promising outlook

The monsoon for the kharif season arrived a little later than usualin Kerala. But it has become active in other parts, with copiousrainfall received in the North East and North India with theexception of some portion of Rajasthan, two weeks earlier thanscheduled. The weather experts forecast a normal monsoon for thewhole season. While it is too early for a reliable assessment,estimates of the total output for the whole year vary in widelimits from 228 million tonnes to 235 million tonnes.
If these estimates are realised, procurement of fine cereals can beeasily 50 million tonnes and moderate imports of edible oils andpulses. Cotton exports can be sizable though textile circlescomplain that their interests are not safeguarded and that evenefficient units are unable to secure reasonable profit margins.However, the weakening rupee will push up the cost of imports ofedible oils and pulses as also crude oil and petroleum products indeficit.
Against this background, it will be reasonable to expect that openmarket prices will tend downward and the inflation curve canflatten and even come down from the 13-year high of 11.05 per centtouched during the week ended June 7. The jump under this head by2.30 percentage point was due mainly to hike in the administeredprices for petro products and other uncontrolled items.
But the rise of more than two percentage points has shockedbusiness circles. It is feared that persisting world inflationarypressures will pose new challenges for the UPA government. TheFinance Ministry and the monetary authorities are confused afterthe latest developments. The adjustments in excise and importduties by Finance Minister P Chidambaram and cut in sales tax rateson petro products by several States have not had the desired impactas the rupee depreciation has had a queering effect. Cash crunch likely

The monetary authorities on their part have been trying to minimisethe hardships from rising inflation with a hike in cash reserveratio on two occasions and increase in the reverse repo rate by 25basis points to 8 per cent. The latter increase could very wellhave pushed up deposit and lending rates of many banks. But in viewof the sluggish growth in fresh credit and the depressingperformance of industry, the State Bank of India and other majorbanks are wary about raising the rates. It is felt that the impactof the higher repo rate will be absorbed and existing levelsmaintained.
However, a cash crunch is feared during the busy season as theimpact of the loan waiver scheme will be serious if the FinanceMinistry does not provide equitable additional liquidity to thebanks concerned. RBI can help

The monetary authorities should therefore keep a watch on thedevelopments and prevent a squeeze developing in the money marketearly next year. In any event, a liberal approach will have to beadopted by the Finance Ministry as well as the Reserve Bank asindustrial output has not been rising at the desired rate.
While it may become necessary to augment bank funds with thedesired adjustment in cash reserve ratio later, it is baffling whythe UPA government has not adopted measures for reducing thedeficits in essential commodities and helping the sugar industry inrespect of utilisation of by-products. The Agriculture Ministry hasbeen dragging its feet and the importance of ethanol for thecountry’s energy security has not been fully recognised.
The growth process also can be sustained by providing the requiredadditional working capital of the petro and fertilizer sectors andother industries like steel, cement, chemicals and pharmaceutical,which have been affected by escalating costs.
The foregoing clearly emphasises the importance of adopting anintegrated approach by the authorities concerned for raising theexport potential and moderating imports of products not availablelocally in the required volume.