Little success in govt price war

The government's war on food prices has seen marginal success so far. Retail prices of sugar dipped 6 per cent after the government announced a slew of measures on January 13. Prices of grain and pulses have remained unchanged.

Ex-mill sugar prices, however, jumped back by Rs 100 for every quintal in the last four days to Rs 3,900 a quintal, after correcting by Rs 400 since January 13.

The sugar industry said there has been be no change in the demand-supply scenario since Agriculture, Food & Consumer Affairs Minister Sharad Pawar extended import duty on refined sugar by nine months (till December 31, 2010) and allowed Uttar Pradesh (UP) mills to process imported raw sugar in other states. 

Around 900,000 tonnes of raw sugar could be processed outside of UP, but not all mills are keen on it. Some want to sell outright (though it is not permitted).

The government has been experimenting with measures to augment grain availability in the open market, but it is not reflecting in retail prices. The food ministry, through Food Corporation of India earmarked three million tonnes (mt) of wheat and 1 mt of rice for open market sale in October-December 2009. Similar quantities have been approved for January-March 2010.

Of the 3 mt of wheat, 1 mt was to be auctioned by FCI to bulk consumers, while the rest was for sale to retailers and small processors by state agencies. The states' response to the move was lukewarm. The government now plans to involve FCI, the National Consumer Cooperative Federation and Nafed.

"If the government is able to offload 3-5 mt of wheat and rice in the next two months, their prices could come down by Rs 4-5 a kg. No immediate relief is seen in pulses. The prices could ease only after March rabi harvest," said Ashok Gulati, director of International Food Policy Research Institute in India.

India's food inflation peaked to a record 19.95 per cent early December - it is currently at 16.81 per cent. "Government steps cannot reverse the high prices. They can provide marginal relief. Food inflation will remain a worry, though the government can push supplies through PDS," said D K Joshi, principal economist, Crisil.

The Cabinet Committee on Prices last week identified the prices of pulses, sugar, potatoes and onions as areas of concern and decided to make an ad hoc allocation of additional 10 kg each of wheat and rice per family per month for January and February.

Wheat would be sold at Rs 10.80 a kg, while rice would be available for Rs 15.37.