NEW DELHI (Commodity Online): India's Finance Minister Pranab Mukherjee has a tough task ahead as he finalises the Annual Budget for 2010-11. The key issue is how to address the food inflation which has soared to 20% and no immediate solution is in sight. While the weak monsoon and floods in some regions may have contributed to drop in cereals and pulses production, there is hope of Rabi season coming to the rescue in some crops such as wheat.

Already alarm bells have come from different quarters warning us of an imminent food crisis. The percapita consumption of pulses has fallen in the last two decades as rising disposable incomes and rising population is galloping faster while production of major pulses varieties except chana are lagging behind. Renowned agriculture scientist, M S Swaminathan warned the other day that India is on the verge of a disaster unles food productivity is increased. "The future belongs to nations with grains not guns," he said.

He described the current food inflation is frightening. If pulses, potatoes and onions are beyond the purchasing capacity of the majority, malnourishment will be a painful result.

Naturally, one would expected the recommendations of the National Commission on Farmers under the chairmanship of M S Swaminathan be addressed in the coming budget. It talks of ushering in a second green revolution that would deal with laws related to agriculture and boosting pulses output.

Siddharth Shankar.Economist, Kassa Financial Services told Commodity Online that while the index of inflation for primary articles declined by 0 .7% on a week to week basis, the decline is nothing to rejoice about. "If we look at the components of primary articles decline in inflation has been primarily due to the seasonal effect on production of fruits & vegetables. The Non-Food articles have shown an increase and so has been the case with minerals. The disturbing part in the non food articles is the rise in price of fodder which directly impacts the farmer and the livestock. The rise in the index of minerals and fuels indicates to the rising input costs of many industries which finally would reflect in higher prices of final products. The consumer confidence index released today has shown a downturn & is at its lowest level in last one year. The bad part about this decline in index has been that the major down turn has come in from Tier II & Tier III cities of the country & is primarily due to the concerns of inflation & spending."

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Siddharth Shankar said it is high time the Central Bank to take charge of the liquidity situation in the economy to ensure an even flow of money into the system. "It may be too early to talk about the withdrawal of liquidity by the Central Bank but surely we can expect a quicker monetary tightening in view of the higher asset prices & rising inflation. I would like to see the RBI giving some definitive signals that would warn the banks against excessive lending to non productive sectors. On the other hand The Government must look into long and short term measures to improve supply of food items."

Pranab Mukherjee unlike his predecessors who only meet captains of industry as a prebudget excercise has met the farmer leaders, agriculturists and policy makers the other day and heard their views and opinion. They felt that storage facilities should be improved so that the entire value chain benefits. The delegation also asked the Minister to review the working of the farm debt waiver scheme and rationalise fertiliser subsidy.

Consortium of Indian Farmers Association (CIFA) Secretary-General Chengal Reddy said he had asked for incentivising the mechanisation of agriculture through tax exemptions on agriculture and water conservation equipment, and removal of service and processing charges on farm loans. He also called for exempting tobacco farmers from service tax, continuing with the duty structure on cigarettes and maintaining the price difference between better quality and cheaper cigarettes. It remains to be seen how far Pranab Mukherjee would use the forthcoming budget to announce major reforms as otherwise, the government stands to lose popular support after coming to power on NREGA and debt waiver schemes.

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