Price rise is built into the very structure of the backward, dependent, Indian economy, but the present wave of price rise is extraordinary. The BJP government has been strenuously arguing that the soaring prices of foodstuffs, including onions, potatoes, edible oils, pulses, and wheat, are the result of poor harvests. No doubt agricultural production in 1997-98 was poor; but the price rise has little to do with the fall in production, except insofar as it has given a signal to big traders to hoard. In fact, the fall in the production of these commodities in 1997-98 was not unusual: the output of Indian agriculture, at the mercy of the weather, routinely fluctuates quite sharply. Witness the fluctuations in the production of coarse grains: jowar production was 12.8 million tonnes in 1992-93; 11.4 m.t. in 1993-94; 9 m.t. in 1994-95; 9.3 m.t. in 1995-96; 11.1 m.t. in 1996-97; and 8.3 m.t. in 1997-98. Similar fluctuations marked all coarse grains, as well as pulses. Tur (arhar) production was, over the same years, 2.3, 2.7, 2.1, 2.3, 2.7, and 2.0 m.t.
There was, of course, a shortfall in production compared to the consumption needs of the Indian people, but that has always been there, and is not responsible for the present runaway price rise (since the starving Indian people do not have money to bid up prices). As the article elsewhere in this issue on onion prices reveals, the price rise in these commodities is really the outcome of an unprecedented level of speculation. The speculators, armed with large hoards of black money, are able to corner the stocks the moment there is news of poor harvests. The Government is neither interested in buying the crop directly from the peasant nor breaking up traders’ hoards. The reported shortfall in this year’s kharif rice production ought to have led the Government to energetically procure rice — to prevent speculative price rise of this all-important commodity later in the year, and to distribute the procured grain equitably. Instead, in a scandalous manoeuvre, all the Government procurement agencies systematically refused to procure rice from peasants in Punjab (the major source of marketable rice) in October 1998, leaving private traders to corner the crop at throwaway prices. This portends a rise in rice prices later, with the benefit going to the traders.
The fact that it is not actual shortages, but hoarding, that has led to such price rise has by now filtered into popular perception too, and so the BJP’s attempt to blame the short agricultural output finds few takers in India. The BJP’s theory does find one taker abroad, however. The U.S. Department of Agriculture (USDA) has been quick to accept this explanation, for it fits snugly with the USDA’s efforts to promote exports of agricultural commodities to India. The BJP-led government’s answer to price rise in foodstuffs — to open up to imports of those commodities — is entirely irrelevant to controlling price rise, as we have seen in the case of onions, but it does take the country further down the path of opening up to agricultural imports. The United States, which subsidises each of its farmers by over $25,000 a year, aims to prise open the Indian market, and what better way to do so than to appear as a supplier in a time of need! The following excerpts from a news item in Economic Times (20/11/98) are self-explanatory.
"The United States perceives better export opportunities in India after the Union government decided to liberalise agricultural trade in several essential commodities and lowered customs duties to contain spiralling food prices.
"The U.S. government also believes that the food price rise in India has been caused by a genuinely sharp fall in agricultural production, rather than simply hoarding and profiteering by domestic traders.
"In an effort to contain prices, the Centre has recently initiated several supply-enhancing measures, including trade liberalisation. Since July 1998, the import duty on vegetable oils has been reduced, the duty on pulses abolished, imports of wheat, oilseeds and onions liberalised....
"The U.S. Department of Agriculture (USDA), in its analysis of the Indian crisis, has stated, `Prices of several major essential food items have risen sharply in recent months causing undue hardship to a majority of India’s low-and middle-class consumers. Although much of the rise in food prices can be attributed to a decline in output, opposition parties are blaming the Government’s ineffectiveness in dealing with hoarders and black marketeers as the cause for rising prices.’
"`In reaction to growing criticism, the Indian government was compelled to announce various policy measures to control price rises and augment domestic supplies including import liberalisation, import duty reduction/waiver and export restrictions’, the USDA has added.
"According to the USDA, the hike in onion prices is mainly due to sustained unfavourable weather conditions which brought down the 1997-98 production by about 15 per cent to around 3.9 million tonnes. The early 1998-99 crop was also damaged by untimely rains....
"For the U.S., in this fresh liberalisation of the agro commodity trade, the biggest business opportunity lies in increasing its soybean and sunflower oil exports to India. In an effort to ease the tight supply situation, India has now freed imports of rapeseed and sunflower seed for private traders and permitted imports of soybeans in split form. Imports of rapeseed and sunflower seed are still subject to quarantine restrictions, which include grow-out trials.
"The U.S. also exports around 2,000-5,000 tonnes of dry green peas to India every year. These may now increase after India decided to do away with customs duty on all pulses. Previously, all pulses were subject to a 10 per cent duty."