PM's address at the Conference of Chief Minister's on Prices of Essential Commodities
Speaker: Dr.Manmohan Singh
Date: February 6, 2010 New Delhi

PM's address at the Conference of Chief Minister's on Prices of Essential Commodities "I am very happy to inaugurate this very important conference of Chief Ministers and State Ministers of Food and civil Supplies to discuss issues related to the recent rise in the prices of food articles and what can be done collectively to control it. I thank my colleague Shri Sharad Pawar for having convened this conference. We are all very concerned about the distress that the sharp rise in food prices has caused to the common man. But before we deliberate upon what can be done to address the issue, it is important for us to know the background of the problem. The year 2009 was dominated by the concern to protect our economy from the effects of the global economic slowdown. The government acted swiftly and I am happy to say that we have done fairly well on that front. At a time when the industrialised countries experienced a sharp decline in output and employment we have only seen a modest deceleration and the growth rate in the first year of the global economic crisis 2008-09 was 6.7%. In the current financial year, the growth rate of the economy is likely to be 7.5%. I am particularly happy to say that we have also been able to protect the inclusiveness of the growth process to a large extent. The National Rural Employment Guarantee Act has been a central instrument for supporting income of the poor in our rural areas. We also greatly expanded our public spending in rural areas, especially in employment intensive activities, all of which has helped create rural income in a difficult time. While we did well to protect incomes of the poor, we have been less successful on the food prices front. Food inflation had begun to rise in 2008, reflecting a sharp rise in global prices of foodgrains. This upswing was further accelerated in 2009 because of the failure of the monsoon, which was the worst since 1972. This is, however, not the first time we are facing high rates of inflation in food articles. We had a similar upsurge in 1998. Food prices are subject to cyclical bursts of inflation and we must work together to bring them under reasonable control. The Central Government has acted on several fronts. My colleague Sharad Pawar has enumerated these measures We acted early to augment the Kharif output in 2009, through initiatives such as assistance for diesel subsidy, permitting truthfully labelled seeds and increasing the subsidy on seeds under various programmes. As a result, the fall in foodgrain production could be contained to a large extent. This is evident from the encouraging trends in the procurement of paddy thus for in the current year. I must take this opportunity to especially thank the Chief Ministers of Panjab and Haryana for their pro-active measures in this regard. They manfully came forward and ensured that our food security is not compromised in the wake of very severe draught. I am aware that in doing so, their finances were hugely strained. I assure them that we will not be found wanting in our support. We have adequate food stocks of rice and wheat in the Central Pool to maintain food security. There should be no panic on the food situation front considering the comfortable level of food stocks that are available with the Central Government. Rabi prospects are also very encouraging. Post-monsoon rains have been good. All this augurs well for our ability to stabilise food prices at a reasonable level. It is, however, essential that this tempo for increased production is not lost and the necessary inputs - fertilizers, water and power - are made available to the farmers on priority basis . I request Chief Ministers of wheat growing states to conduct a review for Rabi with the state food officials to ensure that all the necessary arrangements are in place. In addition, we should also plan for Kharif 2010 to ensure that all necessary inputs are tied up well in time. These measures will help to moderate inflationary expectations and create confidence and also contribute to price stability. High prices caused by shortfall in production can only be handled by augmenting supply either through draw down of available stocks or through imports. As far as imports are concerned, as Sharadji has mentioned, we have freely allowed the imports of those food articles, whose prices have been under pressure. We have also discouraged or completely banned the export of these items. Procurement prices of foodgrains have been increased significantly in recent years deliberately to provide an adequate incentive for farmers to produce more food and to sell it to government agencies for public distribution. It is sometimes argued that high support prices over the past few years have contributed to inflation. Here, I would like to point out that this was also a period when commodity prices in general and food prices in particular rose very sharply in international markets. There is such a thing today as a global food problems. There was thus a danger that if you had not paid the remunerative procurement prices this could undermine the incentive for increase foodgrain production and also adversely our the government's ability to procure adequate amounts for the Public Distribution System. This would have been disastrous for our country and would have hurt all people, but particularly the poor, far more than the element of inflation due to higher procurement prices. It is also important to remember that while we have increased support prices for farmers, the Central Issue Prices for the Public Distribution System have stayed the same since 2002. This has been done to protect the more vulnerable sections of population against the rise in market prices of food grains. This fact must not be lost sight of in discussing the effects of higher market prices of foodgrains on the poorer sections of our population. Domestic stocks have also been used to ease pressure in the open market. The Government of India had earlier intervened through the Open Market Sale Scheme (OMSS), under which 30 lakh tonnes of foodgrains have been allocated to state governments for sale to retail consumers. I regret to say however that lifting of wheat and rice by the state governments under the scheme has not been encouraging in most states. Additionally, a large quantity of wheat has been released for tender sale to bulk users like flour mills at prices lower than prevailing market prices. There has been a substantial pick up of off-take under this scheme and this has had a dampening affect on wholesale prices in recent weeks. More recently, we have announced the decision to release 25 lakh tonnes of wheat and 10 lakh tonnes of rice through the Public Distribution System at prices based on support prices. This is being implemented in the form of an additional allocation of 10 kg per family per month for the next two months. The Central Government has also permitted NAFED and NCCF to distribute these items through their outlets in States. The prices of pulses have no doubt risen much more steeply than other food articles. Here, we have a more basic supply problem. Domestic production of pulses has stagnated over the past several years, indeed for decades. The National Mission on Pulses is being set up now to address this issue. We have of course tried to augment domestic availability through imports, but there is very limited availability in world markets of those pulses which are consumed in our country. We have also imported yellow peas, which have reasonable global availability. These can act and have acted as a good substitute for our traditional pulses. As far as Sugar is concerned, the rise in prices reflects a cyclical domestic supply shortfall. Given the lower domestic output of sugar, we have allowed import of duty free raw and white/refined sugar. But prices abroad are higher than prices in India and this differential has therefore not allowed sizeable imports. We have also allowed accelerated sale of sugar processed out of imported raw sugar. We must expedite the processing of imported raw sugar and remove all impediments that come in the way. I appeal to the State Government of Uttar Pradesh to assess us in this process. Over the medium term, we need to have an appropriate policy framework to ensure that we can successfully tackle the problem of periodic scarcity of sugar and consequential high prices in the domestic market. In this context, the role of state advised prices of sugarcane which are often much higher than the statutory minimum prices needs to be carefully and objectively assessed. Let me now comment on the vital role of state governments in managing inflation. State governments have to ensure that the food articles released by the Centre quickly reach the intended beneficiaries. I think our distribution system is hopelessly outdated with the exception of a few states and it needs complete overhaul. The state governments should give focused attention to developing market intervention mechanisms which can act as a supplement to the Public Distribution System. The State Civil Supply Corporation and Directorate need to be gretately strengthened. Power under the Essential Commodities Act now available with the State Governments should be used to prevent creation of artificial scarcity. My colleague Shri Sharad has on many occasions drawn attention to the wide difference between the retail and the farm gate prices and there is the evidence that retail prices have shot up more than whole sale prices. We need therefore greater competition and therefore need to take a firm view on opening up the retail trade. There are also serious problems with the proliferation of state and local taxes, cesses and levies. I am told that as much as 10-15% additional cost burden at the retail level arises because of taxes on food items. This too needs to be addressed. From a longer term perspective we need to pay much more attention to the factors that result in low productivity in our agriculture. It is well known that in many food crops, including pulses, which are in short supply, large increases in yield per hectare are possible through location-specific nutrient management in both irrigated and un-irrigated situations. I would urge Chief Ministers to introspect on why more attention is not being paid to highly cost effective means of raising productivity and production. Agriculture is a state subject and the key instruments for spreading knowledge of best practices are in the hands of the states. I would urge the Chief Ministers to strengthen and modernise the Agricultural extension services. I would also suggest that Chief Ministers may kindly ensure that your best officers man posts in the agriculture department, especially the post of Agriculture Production Commissioner in the states. I would also urge states to pay attention to timely collection of reliable statistics. This year the initial data made available by states showed much less production than what the states' latest estimates show. As expectations play a very big role in determining food prices, the initial low expectation, therefore, also contributed to the price increase. Let me, in the end, say that I believe that the worst is over as far as food inflation is concerned. With good crop prospects, remunerative procurement prices now being in place and Indian prices being broadly in line with international prices, I am confident that we will soon be able to stabilise food prices. Also, the new production figures should help to moderate inflationary price expectations. Food prices have softened in recent weeks and I expect this trend to continue. I hope that through today's discussions, we are able to develop a better understanding of the nature of the problems and the respective roles to be played by the central and state governments in containing the price increase and also in balancing the interests of farmers with those of consumers of foodgrains. On my part and on behalf of my colleagues in the central government, I would like to assure you that we are always ready to assist States in whatever way we can. I look forward to the discussions today and to your continued cooperation in the future."