The retail markets for raw food items are being frequently disrupted by trade-distorting steps, and, worryingly, these seem like the new normal. While speaking in Parliament last week, finance minister Nirmala Sitharaman vindicated the latest host of supply-side measures as a means to “balance the interests of farmers and consumers,” and insisted that, more often, the government used to “incline towards farmers.” To be sure, the steps coincide with another (apparently transient) spurt in retail food inflation that is mainly driven by short-supply of perishables. They also seemingly coalesce with demand management via monetary tools, and fit in with broader macroeconomic objectives of price and financial stability. What needs to be examined is if these measures, in the aggregate, are safeguarding the interests of large sections of people.
It may well be the case that, a more judicious and stable mix of policies would serve the purpose better. The policymakers, however, must arrest a structural shift towards the high-income and urban segments, and give a boost to rural income and purchasing power, for longer-term sustainability of consumption demand. It is worth noting the significant difference between the current spell of elevated inflation, and the FY09-12 period, when the headline rates were in double digits. While rural consumption outgrew urban spend in FY09-12, for ten consecutive quarters through Q2FY24, urban spending outpaced rural. Worse, the growth in rural consumption plunged to the negative zone in Q2FY24, widening the gap with the (growing) urban sector. Real farm exports, which stayed afloat even during the pandemic, have been in the negative zone since Q3FY23. Evidently, it’s the rural sector that constricted the growth of private final consumption expenditure in the September quarter of FY24 (3.1%). Farmers and agricultural labourers should be spared another blow when the terms of trade may have just turned the corner for them.
While food inflation certainly adds to the woes of the lower and middle strata of the economic pyramid, a severe and prolonged income crisis is what has hit them the hardest in recent years. A modest growth, if any, in aggregate “farm income” is more than offset by the decline in other income for the poor, and the trend of more people relying on agriculture for income. For a decade, wage for agriculture work has hardly grown in real terms. At the same time, a decline in low-paying regular and casual employment in the urban sector and stagnant real wages there forced a significant reverse migration to rural India. This crisis, as reflected in the rise in rural “self-employment”, and elevated demand for MGNREGS, is what needs to be tackled quickly and decisively. It’s fine to pre-empt a spike in onion price with export ban, but sending signals of policy ambiguity might reverse the strides made by India in the global markets for rice, wheat and sugar, where the country’s farmers also have a stake.