`Cost push, supply side problems behind price rise`
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Last Updated: Thursday, December 24, 2009, 23:52
  
Kolkata: Finance Minister Pranab Mukherjee on Thursday partly attributed the reason behind rising prices of food items to increased cost and supply constrains.

"The price rise is mainly due to the supply side mechanism, but there is also an in-built cost push element in the rise of prices," he said while inaugurating the 109th annual general meeting of the Bharat Chamber of Commerce here.

Incidentally, the food inflation eased a bit to 18.65 per cent for the second week in December from the decade's high of 19.95 per cent a week earlier.

Citing an example of the cost push, he said while wheat was procured at Rs 1,100 per quintal factoring of various costs like mandi costs and bank interests pushed the prices.

Besides to induce farmers to produce more, the government had increased the per quintal procurement price of wheat by Rs 450 and that of rice by Rs 400 between 2001 and 2009, he said.

Pointing out that a quintal of paddy yeilded about 67 kg of rice, he said, "So, if you compare the prices, there is an in-built cost-push."

In the mid-term review of the economy, the government had underlined a need for urgent action to contain the rising prices of food articles hitting the common man hard.

"The rise in prices of primary articles of consumption of the common man that has been occurring in the recent times is indeed a cause of concern and this needs to be attended to on an urgent basis," the review table by Mukherjee in Parliament last week said.

He said to increase supply of pulses, sugar and edible oils, his ministry had asked the private importers to import these commodities on government's account, even at the risk of increasing subsidies.

Last week in New Delhi he had also said that "food prices are going up and this is an area of concern... we have to take appropriate measures to see what best could be done by augmenting the supply through imports".

Although the government was allowing free import of sugar and some foodgrain, private importers were not importing these commodities owing to high international prices, he said.

The government was also looking at ways to rationalise the fertiliser subsidies in a manner to take its benefits directly to the farmers, he said.

In order to moderate prices while keeping up farm productivity, there was a need to strengthen administrative mechanisms and reach the PDS to vulnerable communities, especially those without fixed incomes, Mukherjee said.

He said the state governments should ensure that food subsidies reached the vulnerable communities through the PDS.

The states should also strengthen their de-hoarding mechanism so that unscrupulous traders who resorted to hoarding of essential commodities were brought to book, he said.

PTI


First Published: Thursday, December 24, 2009, 23:52


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