Tuesday, November 22, 2011

RBI governor suggest revisit of PDS in the country

Syed Akbar
Hyderabad, Nov 22: Reserve Bank of India Governor Duvvuri Subbarao on
Tuesday called for a serious review of the overall policy framework
for agriculture driven by remunerative prices and subsidized provision
of inputs to curb the growing inflation rate in the country. He also
suggested a revisit of the public distribution system to bring food
inflation under check.

He was addressing a meeting of Indian Society of Agricultural
Marketing held at the National Academy of Agricultural Research
Management here. Subbarao said the factors driving food inflation
include a shift in dietary habits towards protein foods, pressure
stemming from inclusive growth policies, large increases in the
minimum support prices (MSP) of food grains, shocks from global food
inflation, and financialisation of commodities.

“Inflation is a regressive tax and hurts the poor the most.  The
impact can be particularly severe in a country like India with a
population of 1.2 billion, a per capita income of less than $1500 and
a large share of food in the total consumption basket,” the RBI
Governor said.

Subbarao admitted that the direct role of monetary policy in combating
food price pressures is limited, but in the face of sustained high
food inflation, monetary action may still be warranted to anchor
inflation expectations. “The overall policy framework for agriculture,
driven primarily by remunerative prices and subsidised provision of
inputs, needs to change. Persistent and elevated food inflation over
the last few years has emerged as a major policy concern. Though
protein inflation, reflecting changing dietary habits, was evident
earlier as well, the pace of increase has been sharper in recent years
reflecting, in part, accelerated increases in nominal wages
(MGNREGS),” he pointed out.

Stating that the National Food Security Bill, 2011 is another
potential source of pressure on inflation, Subbarao said its
inflationary impact would depend on the extent to which it will raise
demand for food grains relative to the normal increase in supply. This
will create demand pressures, which will inevitably spillover to
market prices of food grains.  Furthermore, the higher food subsidy
burden on the budget will raise the fiscal deficit, exacerbating macro
level inflationary pressures.

“There is a case for revisiting the subsidy regime for a number of
reasons, including the pressure it exerts on food inflation. Subsidies
on inputs (fertilizer, electricity, irrigation) to incentivise
production and subsidies on output for the PDS system, entail a large
fiscal burden over and above the input subsidies, remunerative MSPs
and procurement for the public distribution system (PDS) at prices
linked to MSP further distort the price situation,” Subbarao said.

Two initiatives, currently under debate, that could potentially
improve the situation are: (a) revamping the PDS to check leakage of
food subsidies, and (b) allowing entry of FDI into multi-brand

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