The second meeting of the Inter-Ministerial Group (IMG) on inflation was held today under the Chairmanship of Dr Kaushik Basu, Chief Economic Advisor (CEA), Ministry of Finance. The IMG was set-up at the suggestion of the Prime Minister on 2nd February,2011 in order “to review the inflation situation and suggest corrective measures.” The IMG has been entrusted with the task of studying and proposing policies pertaining to (a) food article inflation and (b) macro-economic demand management.

Today’s IMG meeting pertained to food article inflation. There was discussion on the need to revise our APMC Act and encourage competition among traders and also to promote efficiency in retailing. In his opening remarks, Dr Kaushik Basu,CEA stressed that there are certain natural rises and falls of price which are the market’s way of signalling information to consumers. Dr Basu said that it is not a good idea to flatten out these natural price movements. CEA said that it is when a small shortfall in production results in a disproportionate rise in prices that we realise that there may be flaws in our marketing system. He said that it is these flaws that we need to correct. The aim of IMG is to move away from reacting to each and every crisis to making structural improvements in the system of food production and delivery, Dr Basu added.

Along with Dr. Kaushik Basu, Chief Economic Adviser (CEA) and Chairman of the IMG who chaired the aforesaid meeting, the meeting was also attended among others by Ms. Sudha Pillai, Member Secretary, Planning Commission- Member, Shri P.K. Basu, Secretary, Department of Agriculture & Cooperation – Member, Shri B.C. Gupta, Secretary, Department of Food &Public Distribution – Member, Shri Rudra Gangadharan, Secretary, Department of Animal Husbandry & Dairying – Member and Shri. R.N. Dubey, Adviser, DEA – Member Secretary. The meeting was also attended by Shri Rahul Khullar, Commerce Secretary, Dr. Ashok Gulati, Chairman, CACP, Ms. Geeta Gouri, Member, Competition Commission of India, Shri S. Nagarajan, Managing Director, Mother Dairy, Shri Kishore Biyani, Chairman , Future Group and Dr Bharat Ramaswami, Professor, Indian Statistical Institute, as special invitees.

A presentation on “debottlenecking the food value chain: An Indian retail practitioner’s view” was made by Shri Kishore Biyani, Chairman, Future Group. Shri Biyani deliberated on issues related to physical supply chain, information supply chain and knowledge supply chain. He emphasised that there was huge value erosion as commodities pass through various supply chain systems and procedures in place. He said that this could be avoided through better post harvest management techniques such as sorting, grading, crating and packing. He suggested that one may look at APMCs as an institution for price discovery without actually moving the supplies to the market yards. On climate controlled food handling, Shri Biyani said though it may be the direction to move on yet it was not the intervention with widest impact.

Shri S Nagarajan, Managing Director, Mother Dairy emphasized the importance of developing grading and standards, instant supply of information and plough back of the remunerative prices to farmers. Shri P K Basu, Secretary, Department of Agriculture & Cooperation explained that early warning systems are already in place with regard to agricultural production which includes weekly review meetings with all the concerned agencies and advance agricultural estimates released five times in a year. He said that the weekly meetings cover weather and crop situation, rainfall/ reservoir situation, sowing situation, wholesale and retail prices of essential crops and efforts being made to improve the agricultural production. Shri Basu, Agriculture Secretary, however, agreed that similar systems are still in development phase with regard to horticulture items. He emphasized that agricultural prospect for Rabi 2010-11 are bright and this was reflected in moderating food inflation.

Market intervention limited to cases where small production shortfalls cause disproportionate food price rises; structural supply reforms urged. Government market intervention should be limited to cases where small production shortfalls cause disproportionate food price increases, signalling marketing system flaws. Structural reforms, including revising the APMC Act to foster competition and improve price discovery, enhancing retail efficiency, improving post harvest management (sorting, grading, crating, packing), developing grading and standards, instantaneous market information, and expanding early warning systems for horticulture, are prioritised to strengthen the food production and delivery system and reduce value erosion along supply chains.