Thaindian News

New Delhi, Jan 6 (IANS) With food inflation touching highs not seen since a year, leading industry forums said it was time the government reviewed its intervention strategy and look at efficient management of the supply chain.India’s annual food inflation shot up nearly 400 basis points to the highest level in a year at 18.32 percent for the week ended Dec 25 because of high cost of onions, vegetables and other essential food items.

Industry association Assocham said the fifth straight week rise in food inflation has reinforced fears that the trend would spill over to non-food items, putting pressure on the Reserve Bank of India (RBI) to tighten monetary policy.

“This reinforces the scenario of a 50 basis point rate hike in January when the RBI reviews the monetary policy. The industry should be prepared now for a much larger front loaded rate hike series than what it was expecting about a month ago,” said an Assocham statement.

The RBI had hiked key interest rates six times in 2010 to curb high inflation, but left them unchanged during the last review in December as prices seemed to be under control.

But the recent spike in prices of food items led by onions has again raised the spectre of a rate hike by the central bank.

“The government’s claim of stabilising the inflation at about 5.5 percent, as also benchmarked by the RBI, by the end of the current fiscal, seems to be eluding,” said Assocham.

Amit Mitra, secretary general of the Federation of Indian Chambers of Commerce and Industry (FICCI) said the use of monetary policy for controlling inflation had not worked.

“Food prices have once again gone up and this shows that monetary policy has become an ineffective tool for containing food inflation,” said Mitra.

The industry representative body was also critical of the government for huge mis-management of the food supply chain and pointed to the huge difference between the farm gate and retail prices.

“Demand for food items such as fruits and vegetables, meat, fish and egg, milk has been increasing. Unless we increase production substantially and address supply bottlenecks, we will not be able to control inflation,” said Mitra.

The sharp rise in food inflation has caught even government advisors by surprise.

“We knew that food inflation would go up. I had not expected it to go up by as much as it has. The situation is not at all comfortable,” said Kaushik Basu, chief economic advisor to the finance ministry.

Opposition parties were scathing in their criticism.

“This government has stolen food out of people’s mouths,” said Bharatiya Janata Party (BJP) spokesperson Shahnawaz Hussain. “No item of daily consumption — be it onions or tomatoes — is affordable today.”

The Left called for a reversal of the government’s decision to de-regulate petrol and bring down prices of diesel.

“They should immediately regulate the prices of petrol and diesel, reverse the policy of de-regulation because that is one of the prime reasons that is pushing up prices,” said Communist Party of India(M) Polit Bureau member Brinda Karat.

Karat also added that the government should ban futures trading of agricultural commodities as speculation was another big reason for the rise in prices of food items.

“Why are they not imposing a ban on futures trade of agricultural commodities.”