The Confederation of Indian Industry (CII) has expressed concern over the sustained increase in food prices particularly in the case of cereals, pulses, vegetables and sugar as reflected in the latest official data.

Inflation in food articles has remained in double digits for six months in a row and has risen to 20 per cent in the first week of December 2009.

According to CII, the unprecedented increase in food prices has been caused primarily by supply-side factors primarily due to decline in the kharif output. The price increase has been particularly severe in the case of products such as cereals (rice), pulses, vegetables (potatoes) and sugar. “The rise in the price of essential commodities will put pressure on the disposable income of the common people and may restrict the monetary and fiscal space for manoeuvrability,” according to CII Director General Chandrajit Banerjee.

The CII stated that the government needed to urgently respond by offloading its stock of grains, which were now far in excess of the buffer stock norms. State governments, in particular, need to put in place mechanisms for the widespread distribution of wheat and rice in order to check the shortages.

Similarly, purchase tax on agricultural commodities should be subsumed in GST so that State-level taxes on these products are abolished and the private sector should be allowed to participate in the warehousing and distribution of agricultural commodities.

On the medium and long-term measures, the industry body suggested revamping the MSP (minimum support price) policy and making it more market-oriented, including pulses as a part of the buffer stock maintained by the Government in addition to cereals such as rice and wheat. Further, the Government could also consider involving the private sector to make farming in the non-MSP crops more attractive, it said.

The CII felt that the government must address the issue of stagnating productivity in the agricultural sector. It has suggested increasing public investment in irrigation and effective extension services through private sector participation. Promotion of innovative technologies such as hybrids, biotechnology applications, drip irrigation, sprinkler irrigation and micro irrigation would also help improve farm productivity.

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