Farmer Suicides

Businessworld

Lacking adequate irrigation and remunerative support prices, the Indian farmer continues to suffer at the hands of an uncaring bureaucracy, manipulative politicians and avaricious moneylenders.

More than 280 farmers have committed suicide in Maharashtra’s Vidarbha district since January. The government says that more than 100,000 have killed themselves between 1997 and 2005 .

In Vidarbha, the main cause of suicide is indebtedness to moneylenders, who often charge interest rates of up to 40 per cent on loans.

Though the government has announced a Rs 3,750-crore aid package for indebted farmers, and a Rs 60,000-crore write-off of small farmer loans held by public sector banks, these do not offer any relief to farmers who have taken loans from traditional moneylenders. In fact, 116 farmers in Vidarbha have committed suicide since New Delhi announced its loan waiver.


Both, the state governments and the Centre have also shied away from using existing usury laws to go after the moneylenders, who often hold powerful positions in political parties.

Given the global rise in food prices, which is enriching farmers in countries such as Australia, Brazil and the US, various farmer organisations, such as the Vidarbha Jan Andolan Samiti, are pressing the government to raise the domestic support prices on crops. But New Delhi is refusing to budge.

Inflation election

Businessworld

Raghu Mohan

Annual inflation, which soared to 6.68 per cent by 15 March, can mar the political fortunes of the UPA at the next General Elections. Lehman Brothers’ (India) economist Sonal Varma says that rising global commodity prices — food, energy and metals — have put upward pressure on domestic prices. While the price pressure has been relentless across-the-board, it’s the sharp escalation in manufactured products’ prices in recent weeks that has caused this significant up-tick.

Union Commerce Secretary G.K. Pillai has made it clear to iron ore miners to come up with a solution to knock down steel prices. “We won't wait for even a month,” he told reporters in New Delhi this week when asked for a timeframe. Other categories that have contributed to higher inflation are edible oils, pulses and processed food.


“What a difference three months can make,” says HSBC’s economist Robert-Prior Wandesforde. “In November last year, WPI was running close to 3 per cent, well below the central bank’s 4-4.5 per cent target. Although not (yet) at a level likely to be triggering panic within policy circles, the pace of increase must be of concern. In our view, a further sharp rise looks probable.” HSBC has revised its WPI forecasts upwards to show a 6.2 per cent average rate for 2008-09, and a peak of 6.5 per cent at end-2008.

On 31 March, the Cabinet Committee on Prices, chaired by Prime Minister Manmohan Singh, announced a slew of measures to curtail inflation. It cut the import duty on refined oil (sunflower, soya bean, coconut and groundnut) and on hydrogenated vegetable fats to 7.5 per cent (from 20 per cent), on butter and ghee to 30 per cent (from 40 per cent), and on maize to nil (from 15 per cent) for an upper limit of 500,000 metric tonnes. Additionally, it also imposed an across-the-board ban on the export of non-Basmati rice, raised the ceiling on the minimum export price on Basmati exports to $1,200 from $1,000, and extended the ban on export of pulses by a year.

Will the measures on edible oils work? “China and India are the two biggest importers of vegetable oil, together accounting for 30 per cent imports of major edible oils. India is expected to import 15 per cent of both soy and palm oil,” says Standard Chartered Bank’s senior economist for India, Shuchita Mehta. “Given the recent rally in edible oil prices and that prices would remain on elevated levels going forward, the heat doesn’t seem to be going off.”

Prior to the announcement of these measures, RBI Governor Y.V. Reddy said, “Inflation is unacceptably high. We are very, very concerned. We are in full readiness to take appropriate action to contain inflation.” The cash reserve ratio (CRR) — the money that banks keep as a percentage of their deposits with the RBI — is now at 7.50 per cent. In the RBI’s armoury, the CRR is the most blunt weapon, and it is clear that it will not hesitate to crank up the CRR to arrest liquidity, and, in turn, inflation.


But there is a fundamental question. Is the current rise in inflation a monetary or a supply-side issue? If it is the latter, how are monetary measures going to curb inflation?

It is also likely that the Centre may defer large expenditure and maintain higher cash balances with the RBI in April and May. Prior-Wandesforde is of the view that the Centre, which had shown its hand in the 2008 Budget targeted at the rural poor, will presumably await the verdict of opinion polls and local elections before deciding when to hold the general election; and if further measures are required.