Food prices: Montek slams states on NDTV

Davos: Fed up with the states not doing enough to reduce food prices, the Centre today announced it would directly release food grains into the market over the next two months.

Speaking to NDTV in Davos, Planning Commission Deputy Chairman Montek Singh Ahluwalia slammed the states saying they had taken only a tenth of the food stocks they were meant to.

NDTV: When we talk about issues facing the global economy in Davos, back home people are still worried about two things- one is food inflation and the other is interest rates. Let's talk about inflation first which is a big challenge for policy makers. How will food prices be controlled?

Montek: That is an issue. We have been saying that inflation and food prices is a matter of concern. The government has taken a number of steps basically to increase supplies. Big advantage of the moment is that we have a lot of stocks and Rabi crop is going to be a good crop. We are hopeful that when it comes to cereals like wheat and rice, we will be able to bring softening of prices.

NDTV: By when do you think that will happen. Can you give us any idea?

Montek: Recently, the Cabinet took a series of decisions that will actually increase the supply, to use the stock more aggressively. We have been using the stock. Originally, we had said that we will make the stocks available to the states to pick up. But states did not show enough response to that.

NDTV: Has that changed since then?

Montek: The idea is to do open market sales. We necessarily do not need state governments to take actions. And that will happen in February or March.

NDTV: And the government has decided to not bank on state governments to lift the food grains because that is really not showing any results?

Montek: That is right. It is a very illegitimate thing to do. In first instance we offered it to states governments, they actually did not respond. They took up less than 10 per cent of what was issued. Now, we are going to put out more and also going to be in form of direct sales, which will definitely impact the supply and position of the cereals. Other areas like pulses, where you have got a global worldwide shortage, the solution in the longer run is to increase the production. All food prices have gone up. There is less distress because a lot has been done to increase income in rural areas. For example- NREGA, it has actually put something of the order Rs 2000- 2500 crore of extra wage income has gone to poor families. That shows their ability to cope with the higher prices.

NDTV: That is not the excuse for us to go ahead and not take enough action to ensure that prices come down. You mentioned perhaps releasing more foodgrains, we already have seen some action coming on that front. Are we expecting more action in terms of more food grains that the government is allocating and direct sale as we were talking about?

Montek: Certainly that decision is there and you will see action on that front. Talking about prices, I do want to make a point that in urban areas everybody keeps talking about rising prices. The fact is higher prices for food is an important instrument for the farmers. The guy in the rural areas is much poorer than the people in urban areas who have to pay these prices. One of the reasons that we have got a big increase in food production is because we paid remunerative prices. You have to manage their situation properly, use the PDS to make sure that vulnerable population gets a reasonable price. Globally agriculture prices are shooting up. It thus becomes very important to make people understand that it is not a good policy to keep agricultural prices low. We should be addressing inefficiency in the distribution system where price to the retail area is much higher to what the farmers are getting. So, I think, agriculture prices is a complex issue. If you want food security, you have to give a farmer a decent price. One of the things UPA govt has done to put in place the policies that will support farm production, increase viability and remunerative prices. We have given remunerative prices, farmers are better off, incomes are rising. So you need a total package.

Montek: Six months ago inflation was not a problem at all, but growth was. Today we are doing much better in growth and inflation has become a problem. There is a balance in policies that needs to be struck. Everywhere in the world, both monetary and fiscal policies need to be tailored. How do you keep nurturing, how to counter inflationary pressure. In 24 hours you will know what the RBI will do.

NDTV: Talking about that balance that one is maintaining, its inflation versus growth. There seems that yes there is a recovery and it is still fragile and perhaps ruling back the stimulus, not only monetary even fiscal stimulus, can actually derail the growth momentum right now?

Montek: I would not say that recovery is fragile. But we are yet to ensure that the growth process moving ahead is robust. There is excessive focus on the kind of small monetary policy changes that are made.

NDTV: Normally not so small because interest rates going up affects a large part of the population.

Montek: People should understand that what RBI does is just to repo-rate, it is the short end of the spectrum. It is simply not true that by adjusting the repo-rate, the long-term rate will change. Long-term rate is also effected by several other things.