05/02/2008, 00.00
INDIA
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Indian Prime Minister blames West for record inflation

Inflation in India reaches record level: + 7.57 per cent. Singh criticises the international community for not acting in time to stop price hikes. Experts lay part of the blame on New Delhi though for paying little attention to the farm sector and favouring industry and services.

New Delhi (AsiaNews/Agencies) – With wholesale prices higher by 7.57 percent in mid-April over a year ago, a record high in the last three years, Indian Prime Minister Manmohan Singh said that the “management of the financial sector in the developed economies, especially the United States, has been less than satisfactory”.

Although the international demand for crude oil has gone up by just 1 per cent over the last two years, crude prices have shot up by over 90 per cent in US dollar terms and 40 per cent in Euro terms, Singh told a meeting of the Confederation of Indian Industry on Tuesday.

His administration is trying to curb inflation, especially food prices, ahead of the next elections due next year.

Also on Tuesday the central bank ordered lenders to set aside more reserves, raising the cash reserve ratio to 8.25 per cent from 8 per cent.

Critics however have blamed the Indian government for the problem as well.

The official wholesale price index might have risen by 7 per cent but retail prices have gone up much higher. According to official data, in New Delhi edible oil prices have jumped by a whopping 40 per cent over a year, rice prices by 20 per cent and prices of certain lentils by 18 per cent. In fact inflation has almost doubled in the past five months driven by the skyrocketing rise in the price of food and other basic items.

While the Indian economy as a whole has been growing rapidly at an average of 8.5 per cent over the last five years, this growth has been mainly confined to manufacturing industry and the burgeoning services sector.

The farm sector, which accounts for 18 per cent of India’s current gross domestic product but provides a livelihood to around 60 per cent of the country’s 1.1 billion people, barely grew by 2.5 percent over the last five years.

Higher inflation is due to products like steel and cement, which are in high demand from industry and the service sector.

The result has been that the “government has allowed the condition of the public distribution system for food and other essential commodities to deteriorate and this is hurting the poor very badly,” said S.P. Shukla, former finance secretary to the government of India. “Inadequate public investments in rural areas, especially in irrigation facilities, have contributed to low farm productivity” as has pollution.

Indian farmers are particularly vulnerable since 60 per cent of the country’s total cropped area is not irrigated but is instead dependent on the four-month long monsoon season during which 80 per cent of the year’s total precipitation takes place.

Experts point out that there has never been an acute shortage of food in the country, not even during the infamous Bengal famine of 1943 in which more than 1.5 million are estimated to have died of starvation. The problem has always pertained to access or entitlement to food at affordable prices.

India has also had to use its cereal stocks to contain prices but with less success than expected, largely as a result of corruption and theft. Consequently, it had to import wheat in 2006 and 2007.

The problem has been compounded because the landed price of imported wheat was nearly twice as that of the ‘minimum support price’ the government pays its own farmers.

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