'Aam aadmi' schemes fuelled price rise, admits govt

It’s official now. On Monday, the Union government explicitly admitted that the sharp rise in food prices was partly fuelled by its own programmes and policies — especially the National Rural Employment Guarantee Act (NREGA) and the high procurement prices given to farmers.

The admission came during president Pratibha Patil’s address to a joint session of parliament. Higher prices, she said, were “to some extent a reflection of the implementation of our schemes of inclusive growth involving payment of higher procurement prices to farmers and the impact of higher public spending on programmes of rural development, which have raised incomes in rural areas”. A weak monsoon in 2009-10 did not help matters.

Economists have always maintained that higher rural demand spawned by NREGA spending had increased demand for food, thereby raising prices. The government is now clearly acknowledging this reality.

The president’s hour-long address on the first day of the budget session touched on several issues, from Naxal violence to cross-border terrorism to the question of resumption of dialogue with Pakistan. She made it clear that the Manmohan Singh-led UPA government would follow a policy of zero tolerance towards terrorism.

Declaring the common man was at the core of the government’s promise of faster growth, Patil said importance was being given to ensuring relief on food prices. Steps were being taken to increase the availability of sugar and wheat in the short run, even while boosting agricultural productivity.

“In the longer term, our food security can be ensured only through sustained efforts at increasing agricultural productivity, combined with a comprehensive reform of the public distribution system and open market intervention,” Patil said. “My government is committed to bringing forth legislation to ensure food security.”

She said that the government was confident of achieving 8% growth in 2010-11 and 9% in the year after that.

Rising prices have sparked opposition-backed street protests and left the government little elbow room to push through financial reforms such as easing fuel price controls. But the ruling Congress party faces no risk of losing power any time soon.

The prime minister’s economic advisory council last week said surging food prices threatened to fan broader inflation and endanger the economic recovery. Signs of divergence in views between the government and the Reserve Bank of India over the best policy balance have emerged, with the bank increasingly concerned about inflation while the government insists the policy focus must remain on economic recovery. 

Asia’s third-largest economy is recovering, with factory output surging, but food prices are growing at the fastest pace in 11 years and the government fears a backlash from millions of rural poor who are its main voters.

On Kashmir, the president said that infiltration from across the line of control had gone up. “Government remains vigilant against all forms of challenges posed by terrorism. Zero tolerance of terrorist activities is our principal policy. We have to keep constant watch and innovate against global terrorist groups,” she said.

The president also outlined the government’s approach to the forthcoming foreign secretary-level talks with Pakistan, saying that India was ready to explore a “meaningful” relationship with Pakistan if it seriously addressed the threat of terrorism and stopped terror acts against this country.

The opposition BJP described Patil’s speech as being “more like a DAVP (government) advertisement which gives a compilation of the schemes of the government of India.” In an official statement, the party said the president’s speech did not address price rise or the overall internal security situation in the country in a satisfactory manner. “Also, the document refers obliquely to the exploration of a relationship with Pakistan,” said the statement. “What the president said in the speech is contrary to what the government is doing in actual implementation,” it said.