Stable prices are thus the necessary, though not sufficient, condition for stable growth. Disaggregated figures show that prices of vegetables, potato and onion have been falling for nearly two months now. Vegetables prices have fallen for the last five weeks, potato prices have gone down for over five weeks and so has onion price. The extent of fall in prices is significant in the sense it is collapse of prices.
Onion prices have gone down by nearly 50% in the latest week, by over 46% in the week before and to similar extent for past at least five weeks. Potato prices have also fallen since 12 November. Vegetables prices are falling after 19 November.
This sudden downward trend is a matter of concern, not really a cause for rejoice even in these days of high inflation. These figures indicate the age-old dilemma of Indian farm sector, that is, prices fall in the post-harvest season and start rising again when the supplies start petering out.
These show the utter lack of proper storage and refrigeration facilities for perishable farm products like vegetables. These infrastructure bottlenecks cause price volatility. These also mean that farmers do not get adequate price in the harvesting season. Nor do they get adequate returns when prices shoot up subsequently. It is reasonable to expect that farm prices will spike after the current agricultural season passes.
The outlook might not be stable and price rise may return to haunt the economy once again. It is generally seen that the food prices trend downward during this part of the year when vegetables and fruits production is larger and a greater proportion arrives in the market.
Later, the prices start rising again. Prices of several other food articles have however been rising robustly. These are egg, meat and fish and their prices have kept their inflationary rise of close to 10%. Since there is not much seasonality in their production cycles, the underlying demand and supply conditions have not changed.
Therefore these prices have continued their strong upward movement. Prices of pulses, a major food item for the people, are also rising by about 15% on a year on year basis. Additionally, the price of wheat is also falling marginally as more is being offered by the farmers. The last report3ed stock of what and rice is 51.7 million tonnes, far in excess of the buffer stock requirement of roughly 20 million tonnes. Wheat prices might fall further in the coming weeks.
Foreign direct investment in retail has role here as large international retail chains have the expertise as well as the funds available to build the back end infrastructure. In fact, the permission for FDI in retail could have been made conditional on creation of such retail infrastructure. These call for large investment in refrigeration to mobile distribution vans and network of collection centres in production centres.
Such facilities would have increased the farmers earnings as they would not have been obliged to sell their products at very low prices during post harvest season to avoid wastage. For tackling manufactured goods inflation, the approach should be to encourage investment in the upstream sectors. This is needed in view of the continuing rise in prices of minerals and ores and coal and other raw materials.
There has hardly been any investment for creation of new production capacity in these areas, firstly because of the high financial costs of investment due to hikes in interest rates. Secondly, the required clearances have not been given or land allotment for the large mining projects have been denied. These are needed if any fresh investment is to take place in the areas. No doubt these are the fundamental challenges for the government in the New Year.