Price rise : A serious threat

There is a relentless rise in the prices of all essential commodities. This is happening at a time when the Wholesale Price Index (WPI) is in the negative and Consumer Price Index (CPI) is growing at a rate of over 10 per cent. This mismatch, in itself, has serious implications and reflects a deep structural defect in our economy.

On the other hand, consumers of non-essential commodities, i.e., mainly producers, benefit from a negative WPI. This mismatch is also because of a deliberate bias in the weightage given to the commodities that are considered in the calculation of the WPI. Food and other articles of essential consumption have a weightage of only around 20 per cent in the WPI. The reality, of course, is the exact opposite. The 77 per cent of Indian people who survive on less than Rs. 20 a day spent most of their meagre earnings on food. It is this section that is most affected by rising prices of essential commodities especially food items.

There has been a massive jump in the prices of all essential commodities including cereals, pulses and vegetables by nearly 50 per cent between June 2008 and 2009. In the month of July, this trend has considerably accelerated. This is particularly true with tur dal which shot up from Rs 68 per kg on July 4 to Rs 76 on July 10. Now it is nearing Rs 100 a kg in the open retail market. Similar is the fate of all other dals. In a country where `dal roti’ is the staple subsistence diet, such price levels are pushing millions into suffering.

The prices of vegetables show no different trend. The vagaries of the monsoon and the fears of a fall in the production of foodgrains and cereals is compounding the situation. So far, the delayed monsoon has led to a reduction in paddy transplantation in 13.66 lakh hectares. This is a shortfall of nearly 25 per cent. But the problem is not because of delayed rainfall alone. In states like Punjab and Haryana, which have, virtually, assured irrigation, the shortfall will be to the tune of 8.17 lakh hectares in paddy transplantation. As far as the cereals are concerned, there is, nearly, a 53 per cent reduction in production considering a shortfall in terms of planting. In case of bajra, the sowing has taken place only in 6.56 lakh hectares, which is not even eight per cent of the 2008 figures. Similar things happened with jawar, with maize.

What is required immediately is to universalise the public distribution system and distribute all essential commodities through this network. The current thinking of the government, as reflected in the budget, however appears to be to the contrary. In the name of `targeting’, the definition of the BPL is being so manipulated that crores of people will be left out from receiving foodgrains and other essential commodities at affordable prices.

The abnormal hike in the prices of essential commodities is mainly due to hoarding. It is the government’s responsibility to regulate the market and keep a vigil on hoarding.

This unprecedented price rise is primarily due to the fact that large-scale encouragement is being provided to speculative trading in the commodity exchanges through future trading in essential commodities. The Forwards Market Commission of India, in its fortnightly reports, informs that the total value of trading at the commodity exchanges between June 1 and June 30 this year was Rs. 15,64,114.96 crores. The corresponding figure for 2007 was Rs. 2,21,888.06 crores. In other words, within these two years, the total value of trading in the forward markets jumped by over seven times. This is a gigantic volume of speculative trading. Clearly, such trading is far outstripping the stock of the commodities or the capacity of production in the country. Therefore, the only way profits can be made from such huge value of trading is to ensure that the prices of these commodities relentlessly rise, mercilessly burdening the people.

In this year’s budget, the UPA government far from tackling this phenomenon of speculative trading has done the exact opposite of encouraging it further by abolishing the commodities transaction tax. If the trend of relentless price rise in essential commodities is to be contained , the UPA government must ban all futures and speculative trading in essential commodities.