Rice exports ban to cut inflation in India


3 April, 2008

The Indian Government's move to scrap import duty on crude edible oils and export of non basmati rice is seen as affecting the growth expectations of farm India. The government has taken this extraordinary step to curb growing inflation in India. Inflation in India has risen to a 14-month high in mid-March 2008.

Considering increasing prices of wheat, sugar, edible oils and steel, it is believed that government has compromised on growth. After a four-hour late night debate on the high inflation, the Group of Ministers on Prices decided to cut import duty on all edible oil in crude form to zero percent with immediate effect from March 31, 2008. Rising demand in global market, global warming, bio fuel production, hot commodity market and price rigging at futures trading marts are said to be the reasons for soaring commodity prices in India. The government aims to reduce domestic prices by allowing free flow of products from the global market.

But the domestic producers and farming community are less satisfied as their income would dwindle with the new government decision. The farming community feels that they have been getting a fair price for their products after a long time. They point out that government intervention would affect the farm sector in the long term. While prices are going up continuously, there are chances that more and more people will enter into the agriculture sector. Scope of realising higher income from agriculture would also help in attracting more investment in this sector. The present move would restrict investment flow into the agriculture sector.

The decision of the government to ban export of non basmati rice would also have a negative impact on the rice farmers in the country. The farming community had suffered huge losses due to erratic rainfall in many parts of the country. Last week, the government had withdrawn export incentives of more than 40 items, such as steel, cement and spices. Duty on maize imports was cut to zero from 15 percent, while a ban on exports of pulses was extended for 12 months. During the past ten years of globalization, liberalization and privatization, many Indian companies operating in farm products marketing have been successful in grabbing large markets globally. The present ban of agricultural product export will lead to loss of these markets.

While a dozen states are going to the polls this year and the general elections are at the door step, the government is not ready to take any risk. The ruling Congress party feels that any undue rise of essential commodities price would have an adverse impact. It has been pointed out that annual wholesale inflation of the country had jumped to 6.68 percent in mid-March 2008, largely due to the increase in foods and manufactured product prices.

It now remains to be seen whether an acceptable move to contain inflation would come about in the coming days.





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