Violence Erupts Against Rising Food Prices In Eastern India

The Economic Times reports that violence erupts against rising food prices in Eastern India.

(emphasis mine)

Bihar faces food price discontent, violent protests
28 Jan 2010, 1552 hrs IST, REUTERS

NEW DELHI/PATNA: Violence erupted against rising food prices in Bihar on Thursday, heaping more political pressure on the government to focus on inflation rather than growth and financial reform.

Mobs stoned trains and jammed roads with burning tyres in Bihar, trying to enforce a day-long shutdown.

Shops, offices and schools remained closed on Thursday,
when official data showed that food prices in Asia's third-largest economy rose an annual 17.4 percent in mid-January.

At least 12 passengers were injured when angry crowds stoned a train in Hajipur town, while thousands marched in the street in different parts of the state asking shops to shutter.

"Their anger is natural," said Lalu Prasad, head of the Rashtriya Janata Dal (RJD) party, referring to rising food prices.

Food prices have soared because last year's monsoon rains, which irrigate 60 per cent of farms, were the worst in 37 years.

Higher prices paid by government agencies to buy grains from farmers have also helped push the headline inflation rate to 7.31 per cent in December, the highest in a year.

Inflation and a high fiscal deficit are major risks to the country's ambitious plan to return economic growth back to the 9 per cent a year level seen between 2005-06 and 2007-08.

A focus on inflation may also distract the Congress party from pushing reforms such as the liberalisation of the agricultural sector that may help cut the fiscal deficit, which is projected to rise to a 16-year high of 6.8 per cent of GDP in 2009-10.


Food prices have been key to political survival in the past. Onion prices helped push out a state government in 1980.

Now, the volatile issue has given opposition parties a handle to attack the government, giving BJP a credible issue against the ruling party, which draws its support from a large chunk of India's rural poor.

"It's the biggest headache for the government right now," said Saibal Gupta, secretary of Asian Development Research Institute, a private think tank.

Analysts say Prime Minister Manmohan Singh's government needs to walk a fine line, trying to please farmers, who want higher prices for their produce, and consumers, who want prices to fall.

"If (rising prices) not tackled in time ... the government may also have to suffer political reverses in states where elections are due."

Local elections are scheduled in Bihar and West Bengal states over the coming year.

With public anger focused on high food prices, opposition parties may disrupt parliament proceedings, further delaying debate on bills such as those on land acquisition and entry of private players into the pension sector.

Milk to get dearer in India reports that milk to get dearer in India.

Inflation rears up; milk to get dearer
Himani Kaushik, Bloomberg UTV
Published on Jan 20, 2010

NEW DELHI: The rising food price continues to put pressure in inflation.
Now government is admitting that even milk prices are set to rise due to poor production.

Having a cup tea has never been so expensive as milk price are set to climb up. While government continues to battle escalating food prices especially of sugar and pulses, Agriculture minister Sharad Pawar indicated on wednesday that the cost of milk would also increase in Northern India on account of a dip in milk production.
India is facing shortage of nearly 18 lakh tonne of milk due to low production.

The Hindustan Times reports that milk going sugar way, dairies cry shortage.

Milk going sugar way, dairies cry shortage
HT Correspondent, Hindustan Times

Delhi, January 20, 2010

Signs of milk prices firming up due a shortage in north India became evident after a state dairy ministers' meet on Wednesday, with Agriculture Minister Sharad Pawar doing a flip-flop on whether prices could rise.

Dairies in some northern states were pushing for higher milk prices due to scarcity. On this, Pawar said: "Unless there is a decision (on hiking prices), I do not know whether the states will be able to procure (milk) to meet the demand."

Within hours of the statement, Pawar was widely quoted as saying that milk would be costlier, upsetting consumers battling a food price spiral. Later, Pawar said all he meant was that states might have to take a call on increasing prices to ensure availability.

Milk production in India, the world's largest producer at 108 million tonnes in 2009, has been growing at an average of 4 per cent. Supply-demand forecasts for 2010 had hinted normal availability. The surprise shortage may have to do with some northern states not meeting production targets, Pawar said.

The opposition slammed Pawar for setting off panic.

Commodity Online reports that rift wide open among ministers over price rise.

Rift wide open among ministers over price rise
Published on January 25, 2010 at 16:45

NEW DELHI (Commodity Online): It now seems the Indian Prime Minister, Dr. Manmohan Singh is not able to crack the whip and sort out the difference between various ministers which are at logger heads over various issues.

Agriculture Minister, Sharad Pawar is the driver of this rift with opposition crying foul and asking for his resignation. Though his colleagues in the UPA coalition are also repeating the same rhetoric, their voices are drowned in the coalition political understanding.

Essential commodities price rise has become the si ngle most focal point that could ruin the chances of UPA in future elections. In fact, the government is already preparing to hand over the power to a beleaguered BJP on a platter.

Serious issues have cropped up in ministries responsible for essential commodities. The agriculture minister says he is not a God to predict or change weather patterns and also complained that other ministries are not supporting his moves, an allegation leveled by other ministries too.

Inside sources say Anand Sharma (in charge of Commerce), Subodh Kant Sahay (Food processing) and Environment minister Mr Jairam Ramesh have completely different view from what Sharad Pawar proposes.

The lack of co-ordination has led to poor control and administrative lapses. For instance, the government failed to release its food stock at the right time putting the market to tizzy. Prices of Pawar's darling commodities like Sugar reached to unimaginable levels.

A worried Pawar asked for a ban export of milk and milk products to combat its rising prices but the Cabinet Committee on Prices presided over by the Prime Minister rejected the plea saying the real issue behind milk price rise is anything but shortage of the commodity.

Pawar is being isolated for more than one reason. Once the prime ministerial aspirant, Pawar got his hands full without realizing how his health and age could allow him to do so much work, a job that his disciple Suresh Kalmadi also specializes in.

Both Pawar and Kalmadi has got into epic management of those organizations to which their knowledge and time are limited putting constraints to their original commitment — to the ministry to which they have taken vow for and to the people of the area they represent.

The Prime Minister is reportedly unhappy at the Agriculture Ministry but he cannot do anything other than take a jibe at the minister.
If the prices continues to increase, the coalition theory will collapse sooner or later.

India Raises Banks' Reserve Requirements

The New York Times reports that India Raises Banks' Reserve Requirements.

India Raises Banks' Reserve Requirements
Published: January 29, 2010

NEW DELHI — Hoping to tamp down inflation without stalling economic recovery, the Indian central bank acted cautiously on Friday by increasing banks' reserve requirements but leaving interest rates unchanged.

The Reserve Bank of India raised the cash reserve ratio, or the percentage of deposits banks must have on hand as cash, by three-quarters of a percentage point, to 5.75 percent. That was more than the 0.5 percentage point rise most analysts had expected.

The change will absorb 360 billion rupees, or about $7.8 billion, from the Indian financial system, the central bank said. "Even amidst concerns about rising inflation, we must remember that the recovery is yet to fully take hold," the central bank said.

The central bank left the repo rate, a key lending rate, steady at 4.75 per cent. But most economists expect it to lift rates by the end of April.

"We need to tighten," the bank's governor, Duvvuri Subbarao, said at a news conference, Associated Press reported. "An increase in policy rates will happen sometime in the future."

Central bankers in India and other Asian nations face a dilemma: Their economies are heating up, but there is no guarantee that there will not be a "double dip" recession in developed countries that could hurt them, meaning economies in the United States and Europe would contract again.

The issue is "how to make it look like a tightening when the real objective is to leave liquidity conditions little changed," said the UBS economist Philip Wyatt. The Indian central bank's action Friday "shouldn't be a significant restraint on the economy," he said.

The Indian economy grew 7.9 percent year on year in the July-to-September quarter, far better than most other countries. But inflation is rising, with food prices in particular rising sharply. The inflation rate in December was 7.3 percent, up from 4.8 percent in November; some analysts say it could hit 9 percent in coming months.

That is mainly because the costs of essentials like vegetables and grains have risen after droughts and floods. India, which usually produces nearly all the food that it needs, may need to import, government officials said late last year.

The food price index increased 17.4 percent
in the week that ended Jan. 16 from the previous week. Grain prices are up about 47 percent from a year ago.

"For several months, rapidly rising food inflation has been a cause for concern," the central bank said Friday. "More recently, there are indications that the sustained increase in food prices is beginning to spill over into other commodities and services as well."

The Reserve Bank said prices of manufactured goods had increased in the past two months, in part because of rising food prices.

My reaction: Soaring food prices have become a major headache for politicians in India.

1) Food price rise is causing rifts to open among ministers. If prices continue to increase, the government coalition will collapse sooner or later.

2) Food prices are key to political survival.

Essential commodities price rise has become the single most focal point that could ruin the chances of UPA in future elections. In fact, the government is already preparing to hand over the power to a beleaguered BJP on a platter.

3) There are indications that the sustained increase in food prices is beginning to spill over into other commodities and services as well

Conclusion: India is not worrying about deflation anymore.

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11 Responses to Violence Erupts Against Rising Food Prices In Eastern India

  1. rwe2late says:

    Bad weather is only one of the four major causes of food shortages in India and elsewhere.

    1) Diversion of resources to militarization in poverty-ridden nations such as India, with the encouragement and pressure of the US to do so.;=17099

    2) Destruction of local agriculture base by “free market” reforms, and consequent exposure to vagaries of global markets, enterprises, and prices. (Again, with worst effects in poverty-ridden nations such as India and Haiti.);=6522;=6127

    3) Conversion of foodstuffs to biofuel. One quarter of US wheat crop becomes biofuel.;=8754

  2. Jimmy says:

    Yo Eric,

    Maybe possible backwardation is coming on comex.

    Watch out with the crimex!



    (could you confirm it on your next new article/research?)

  3. Jimmy says:

    This would surely attract your readers, about the possible backwardation ;-)

  4. Trader says:

    Eric, where is your "major" article?

    You said many times "on the next few days."

    -Dissapointed trader-

  5. kean says:

    China will not get hyperinflation. They will get high inflation. They will be forced to depeg and the yuan will appreciate, while the dollar collapses. Basically, the east standard of living will catch up to the west.

  6. Tyrone says:

    Off-topic: 2011 Budget Coin Debasement
    Terminations, Reductions, and Savings

    The Mint’s primary cost driver is the price of metal, a factor over which it has no control. Daily spot prices of copper and zinc, the Mint’s two main metallic materials, have fluctuated in excess of 100 percent, and the price of nickel by 500 percent in recent years.1 This contributes to volatile and negative margins on both the penny and nickel: in recent years the penny has cost approximately 1.8 cents and the nickel approximately 9 cents to produce.2 Costs have exceeded the value of these two coins by over $100 million in prior years.
    Through its gains on other coins, the Mint annually returns hundreds of millions of dollars to the Treasury General Fund (GF) and is funded by the Mint Public Enterprise Fund.

    Greater flexibility in the composition of coinage materials could enable the Mint to utilize less expensive metals in the minting process and substantially reduce its production costs. Using alternative coinage materials could save $150 million annually after an initial period of development and capital adjustments. These savings result from increased seigniorage, or the difference between the face value of the coin paid by the Federal Reserve and the cost of production. Seigniorage increases the available means of financing, but has no direct budgetary impact. Specifically, the Budget includes provisions that authorize the Department of the Treasury to approve alternative coinage compositions and weights across five denominations (half dollar, quarter, dime, nickel, and penny).

  7. sudhaman says:

    the govt is set to raise the price of fuel in few months over too much pressures of oil companies losses. the price of LPG is set to go higher about 17pc. civil war is guaranteed.

  8. Numonic says:

    kean said...

    China will not get hyperinflation. They will get high inflation. They will be forced to depeg and the yuan will appreciate, while the dollar collapses. Basically, the east standard of living will catch up to the west.

    You see i don't believe China will depeg from the US$ as a means to appreciate the Yuan. We just saw in December and January and at the moment, the means China took to appreciate it's currency was to slow consumer loans not depeg from the US$. Which means China still cares about it's export sector(US consumption) more than it does it's domestic consumption. The only reason China would choose to depeg from the $ is if it started to value the Chinese consumer more than it did the US consumer, and I can't see why it would as consumption is consumption and it doesn't matter who is doing it, so why rock the boat.

  9. kean says:

    east catches up to the west can mean that east standard goes up or west comes down. i do not know why you assumed the former.

    eric: i believe you have good insight in world current affairs--very few ppl. have the gift. i also believe you know things you haven't shared with us due to fear of looking foolish/crackpot. i know things. many of us know things. i believe it is time to unite the great minds against the tyranny that's about to come.

  10. Mark says:

    Food price inflation spilling over into other areas?

    Let me put it the following way:

    compare India to the situation when the US has faced strong inflation expectations during the 70s. Crop problems exacerbate inflation in the food sector in India now, but the general inflationary trend may rather/also come from generic inflation expectations due to large growth in general (India now in some respect one of the leading countries of the world -- how does that make Indians feel?).

    If we actually have manifest inflation expectations in India -- which really seems to be the case -- then expect their central bank to take measures like Volcker did at the beginnig of the 80s. Maybe this will trigger a global financial/economic collapse....

  11. Mark says:

    Watch from position 1:45 onwards in

    There we have true evidence that India's wheat reserves may be actually useless.

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