A meeting convened by Prime Minister Manmohan Singh to discuss measures to calm soaring food prices saw sugar become a key focus area with Pawar plumping for freeing its export, citing an expected bumper crop this year.
As soon as Pawar raised the issue, Chidambaram retorted by saying that there was no need to make fresh commitments when there were unfulfilled export obligations. The home minister had last week raised doubts about the way food inflation was being tackled and wondered if the government had the tools to tackle the menace.
Sources present at the meeting said Pawar had to back down and the matter was referred to a ministerial panel. They said that the government is worried over rising food inflation, which hit 18.3% in the last week of December, and was changing course in view of a global supply crunch for sugar. It had earlier indicated that sugar exports would resume in February but the recent spike in food prices has led to second thoughts.
There was also discussion on banning futures trading in farm commodities, including sugar, but the PM and his close aides on Tuesday opted for status quo. The recent spike due to rising fruit and vegetable prices, where no futures trading is allowed at present, was a factor that weighed in favour of continuing with futures trading. Potato futures are an exception, but retail prices of potato have actually dipped due to improved supplies.
Faced with a limited set of options to beat back inflation in view of growing demand-supply gaps, the government has fallen back on short-term measures like cracking down on middlemen in vegetable markets to contain price rise. However, it realizes that such crackdowns too can prove counter-productive, as proved by the recent income tax raids on onion traders.
Some immediate measures to reduce the intermediation cost in vegetables are being considered. "It is not just onion prices, sharp increases in vegetable rates are a serious matter. There are many layers of middlemen in the market," a source said.
The cabinet secretary has been asked to draw up a note detailing the action plan which will be circulated to the PM and senior ministers and the deputy chairman of the planning commission. Proposals that will be drawn up would be considered by the cabinet committee on economic affairs ( CCEA).
The assessments offered at Tuesday’s meeting show the government is dealing with a limited set of price control options. Presentations pointed to critical food production and demand gaps, suggesting few alternatives to living with inflation. Prices could moderate but inflationary pressures would remain.