Economic Survey: Cut fertiliser subsidy, restore farmers' pricing freedom to clip inflation

Inflation, mainly driven by high food prices, has cooled since previous years but the government will need to move towards a low and stable inflation regime through fiscal consolidation, the Economic Survey released today stated.

The survey of the Indian economy noted that in comparison with previous years, inflation has shown signs of receding with wholesale price index falling to a three-year low and consumer price index also falling. Food inflation remained worryingly high and was a result of structural as well as seasonal factors, the survey noted, adding that a poor monsoon and high oil prices this year could continue to keep it high.

The survey has recommended that the government needs to move towards a low and stable inflation regime through fiscal consolidation, establishing a monetary policy framework, and creating a competitive national market for food.

“Initiation of reforms on these fronts should reduce inflation uncertainty and restore a stable business environment. Further lower inflationary expectations should increase domestic household financial saving and make resources available for investment,” the survey noted.

The survey has also made wide ranging recommendations on reforming the food market to reduce the stubbornly high food inflation.

“Restrictions on farmers to buy, sell and store their produce to customers across the country and the world imposed by Indian laws enacted in the 1950s and 60s have not been removed, even though restrictions on industry were removed long ago. Restoring economic freedom of farmers and allowing them to be part of a competitive national market is essential for controlling food inflation,” the survey noted.

The survey has said that the state needs to create new markets and intervene to create rural infrastructure and training institutes. The government has also been urged to set up a modern regulatory framework for warehousing and commodity futures.

As part of the fiscal consolidation, the survey has also urged a rationalisation of subsidies for agricultural inputs like fertilisers and instead provide income support to the rural poor.

“Rationalisation of subsidies on inputs such as fertilizer and food is essential. Government needs to eventually move towards income support for farmers and poor households, so that market forces are able to respond to changes in consumption and technology,” the survey noted.