Fund for Centre’s anti-inflation intervention in need of ₹5.5k-cr | Latest News India - Hindustan Times
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Fund for Centre’s anti-inflation intervention in need of 5.5k-cr

Nov 12, 2023 05:12 AM IST

The consumer affairs ministry in India urgently needs ₹5500 crore ($800 million) for a fund that helps control food prices and maintain emergency reserves of key commodities. The ministry is exploring ways to meet the cash demand, including borrowings and advances. The fund, set up by the Modi government, allows the government to release items such as onions and pulses during shortages and price spirals. The current budget allocation for the fund is just ₹100,000, and the ministry is relying on a revolving fund of ₹250 crore, which is insufficient to meet its operations.

New Delhi: The consumer affairs ministry urgently needs about 5500 crore for a fund that caters to the government’s critical market interventions to ease food prices and maintain emergency reserves of key commodities, people aware of the development said, asking not to be named.

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The ministry is currently discussing “ways and means, including borrowings and advances” to meet this year’s cash demand amid larger outflows to control inflation, one of the persons said, declining to elaborate.

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The ministry administers the “price stabilisation fund” set up by the Modi government in 2015-16 to maintain onion and pulses buffer stocks, which enable the government to release these items during episodes of shortages and price spirals.

This year’s budget allocation for the fund was a token amount of 100,000. Last year, the fund was allocated 1500 crore.

Currently, the ministry is relying on a “self-proceeds and a revolving fund of 250 crore”, which is scarcely enough to meet its operations, a second person said. The fund allows the government to purchase volatile food items, such as onion, usually through a state-backed agency, such as NAFED.

The agency can therefore intervene in markets during high inflationary spells by selling the item at a discount to traders and consumers alike to cool prices.

For instance, the government is currently selling onions at 25 a kg across the country, which has led to a quarter per cent fall in prices this week. At 60 a kg, onions still remain twice as expensive as they were a month ago.

The government is also selling discounted pulses at 60 a kg and Bharat Atta (wheat flour) at 27.50 a kg through NAFED and NCCF, both state-backed cooperatives. The fund also helps the government to sell edible oils and pulses through Mother Dairy outlets and state-run consumer stores.

In the current fiscal year, the government has intervened multiple times to cool prices.

Adequate funding is also necessary also because the government has scaled up its onion buffer stock to 500,000 tonne for 2023-24. “It is not feasible to wait for revised budgetary allocations due to higher cash outflow,” the second person cited above said.

Onions have been the most volatile of essential items this year mainly because of disruptions to harvests due to extreme weather and deficient monsoon.

Retail inflation, as measured by the Consumer Price Index, slowed to a three-month low of 5.02% in September from a year ago, led by a decline in vegetable prices. However, the government has been battling high inflation in key food items, such as cereals, onions and lentils.

Currently, under the price stabilization fund, the government maintains dynamic buffer stocks of four types of commonly consumed pulses and onion, which are released in a calibrated manner to ease consumers prices. Money also goes towards purchase of stocks.

“The token amount of 1lakh allocated to the price stabilisation fund likely means the government will resort to borrowings from sources like the national small savings schemes to meet the costs,” a former secretary of the Union government said, declining to be named.

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  • ABOUT THE AUTHOR
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    Zia Haq reports on public policy, economy and agriculture. Particularly interested in development economics and growth theories.

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