How the govt plans to tackle soaring food prices

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Spiralling food prices, on the back of one of the weakest monsoons in many years, and the average Indian has a big problem to worry about! Sample this: sugar prices have more than doubled in the past year as production levels declined heavily, courtesy the drought. Below average monsoon in the country this year resulted in the kharif sowing season taking a huge knock. India's monsoon this year was 23% below average - the worst since 1973.

Government data released Thursday showed the country's food price index was up 13.39% from 12 months ago even as the parameter for overall inflation, the wholesale price index (WPI) (which also factors in other items like manufactured products and commodities like fuel), stands at 1.51%, according to latest figures, but is steadily rising.

In fact, in a recent statement, Reserve Bank of India (RBI) Governor Duvvuri Subbarao said the rise in WPI inflation was mainly being driven by food prices. The RBI estimates that WPI inflation may reach as high as 6.5% by March.

When will food prices fall?

On Wednesday, Deputy Chairman of the Planning Commission Montek Singh Ahluwalia said food price inflation was a concern but it should moderate by the end of this year because the rabi (winter harvesting) season would make up for some of the shortage in food supplies.

"We are concerned about food price inflation. If it goes out of control, it will hurt the aam aadmi. With the prospects of good rabi, food prices will begin to come down by year end," Singh told reporters at the Economic Editors' Conference.

At the same conference, Agriculture Minister Sharad Pawar, responding to a query on high food prices, said, "It is difficult to say if prices would come down now. But I assure you, once rabi arrivals start hitting the market, there will be relief," he said.

India is likely to increase the acreage (total area of land under cultivation, measured in acres) and output of most rabi crops, especially rice and oilseeds, to partly offset losses suffered in the kharif season due to the twin issues of weak rains and floods, Pawar said. "Improved soil moisture due to late monsoon rains has improved the prospects of rabi."

Higher crop coverage and better farming methods will result in about 8.5 million tonne higher food grain output this rabi season from a year ago, the minister added.

What the government is doing

Rice: Rabi rice acreage is likely to increase by 1.2-1.5 million hectare in a few states and production is expected to rise by about 1 million tonne, Pawar said, adding that rice acreage would rise mainly in states like West Bengal, Orissa, Andhra Pradesh, Tamil Nadu, Bihar and eastern Uttar Pradesh.

According to government data, India's 2009-10 kharif rice output is estimated at 69.45 million tonne as against 84.58 million tonne last year. "Fortunately, we have good rice stocks because of last year's bumper crop. But there is a gap in demand and availability, that is why we have cut duty on rice imports," Pawar said.

Last month, the government had notified scrapping 80% import duty on rice imports until September 30, 2010. In 2009-10, the government plans to procure 26 million tonne rice from farmers as against 33.3 million tonne last year. However, the government has not decided on the quantity of rice it plans to import this year, Pawar said.

So far, only three state-owned agencies-MTC Ltd, PEC Ltd and State Trading Corp have floated tenders to import 10,000 tonne rice each. The government had 15.3 million tonne rice stock in the central pool as on October 1, the minister said.

Wheat: Acreage of the main rabi crop, wheat, is also likely to increase by 0.5 million tonne this year, with output seen 2 million tonne up on year. Last year, the country produced 80.58 million tonne wheat.

The government had procured about 25.6 million tonne wheat from farmers last year, as against 22.7 million tonne in 2007-08. As a result of record procurement over the last two years, central pool wheat stock was about 28.5 million tonne as on October 1.

Pulses, oilseeds: On account of improved soil moisture due to late monsoon rains, winter-sown pulses area is likely to rise by 1.5 million hectare, which will result in additional production of about 1 million tonne, Pawar said. Similarly, more area under oilseeds is likely to up production by about 1.2 million tonne. Coarse cereals maize, sorghum and bajra will together account for 1.5 million tonne additional production, he added.

- With inputs from agencies and CNBC-TV18