Government must use buffer stocks, import taxes more aggressively to manage food inflation: Ashok Gulati

He said the government made deep cuts in import duties on edible oils and today the edible oils led inflation is negative.

The economist also highlighted the need for aggressive use of buffer stocks to cool off cereal prices. “Cereals as a group have the highest rate. Within cereals, rice is more than 2.5 times the buffer stock now. You unload 3 million, 5 million, 7 million you can bring down prices wherever you want “

Gulati indicated this advice seems to have worked in arresting wheat prices and CPI inflation for wheat is likely to “collapse”, in the next one-two months.

“Wheat prices, which only two months back were at 25 percent inflation, and we looked at commodity by commodity, we said you are sitting at on 3 million tons extra buffer stock, why don’t you unload and when govt acted on that between Jan to March the wholesale price has already fallen from Rs 2700 - 2800 a quintal to Rs 2100, 2200/quintal. And the CPI will follow now with a month or 2 months lag, and you will find wheat inflation collapsing which is still at 19 percent. “

“So, if you use the buffer stocking policy wisely and trade policy you have a lot of scope, because import tariffs are very very high, this is the right time. We can play with that,” Gulati went on to say.

Gulati also observed WPI inflation has trailed off because of the offloading of buffer stocks.

However, RBI’s lower inflation projection for this FY is dependent on a normal monsoon. But here too, a combination of buffer stocks and the trade policy can help avert a spike in food prices, even if there is a drought, Gulati observed.

“Under normal situation even if there is a drought and if we play our buffer stocking policy and trade policy more aggressively, I feel, we can contain inflation below 6 percent and in a normal monsoon if we are proactive on buffer stocking and trade, we can actually bring it down below 5 percent and I can give you a number of commodity examples in what needs to be done right away.”

The agricultural economist was speaking at a NACER session on the IMF’s April Fiscal Monitor.