Govt can't control food prices, accepts FinMin adviser

As food inflation surged to 18.32 per cent, a top adviser in the finance ministry on Thursday agreed with Home Minister P Chidambaram that the government does not have all the tools to control food prices since it is an enabling body.

"Absolutely," chief economic adviser Kaushik Basu told reporters when asked whether the government does not have all the tools to control food prices.

P Chidambaram, who had served as Finance Minister in the previous UPA regime, had yesterday wondered whether the government has all the tools to rein in high food prices.

"Nor am I sure whether we have at our hand all the tools to control inflation. Some say we do, some say we don't (have tools to check price rise). At least in case of food inflation, I have not heard anyone arguing convincingly that we have all the tools to control food inflation," the home minister had said.

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Basu said, "I mean this is a huge country in terms of population and land area. It is utter mistake to think that it is fully within the control of the government to move prices of food up and down."

"The government is just an enabling body, there are little local bodies taking decisions, there are private players taking decisions, farmers taking decisions ... The government can give signals, can intervene strategically to keep the situation as much under control as possible," he said.

While stating that food inflation at 18.32 per cent is not comfortable, Basu said the situation is being watched and appropriate action will be taken. He also said that the spurt in food inflation was expected, but not to the extent of 18.32 per cent, recorded for the week ended December 25.

He said movement of onion, whose price rise resulted in surge in inflation, should be facilitated to bring down rates.

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Basu said he will emphasise on facilitating the onion movement at a meeting called by cabinet secretary K M Chandrasekhar to take stock of prices later on Thursday.

When asked that the government did not take steps when onion prices were at Rs 40 per kg, and woke up only when the rates shot up to Rs 75-80 a kg, Basu said, "I am not denying that there are occasions when slightly earlier moves could have been made, no two ways about that."

Basu, however, cautioned against using any blunt instrument like arbitrary fixing of prices to tame exceptionally high prices, as such a move results in shortage of commodities and retard growth.

"There has been increase in prices. These have to be tackled. True. But, we cannot tackle them with blunt instruments, it will lead to slow down in growth," he said.

Basu said though food inflation is going up, overall trend is southward.

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"So, the situation (food inflation) is not good, not comfortable. We are watching it ... but the overall trend is downward one and we are going through a bit of rough patch over last few weeks," he added.

He said while overall December inflation would be higher than 7.48 per cent in the previous month, it would decline in next one month.

The finance ministry has already revised its overall inflation target to 6.5 per cent by the March end, from 6 per cent as projected in the mid-year analysis tabled in Parliament last month.

The week-based inflation number, which is the highest for 2010 so far, was spiked by the rising onion and vegetable prices. Food inflation for the preceding week was recorded at 14.44 per cent.

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While vegetables became costlier by 58.58 per cent, onion prices rose by 82.47 per cent on an annual basis. On weekly basis, onion rates rose by 23.01 per cent in wholesale market.

Basu said food inflation data was reflective of prices, before government steps to check rising prices of onion were announced.

The government banned onion exports and removed customs and countervailing duties on the bulb.

"These steps had moderating impact on onion prices," he added.

However, Pakistan has already stopped export of onion to India, that can blunt the impact of such measures.