External factors responsible for surging inflation rate: study

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New Delhi, May 18 (UNI) A recent study showed that inflation is surging on account of high international crude prices, rise in farm prices, forex inflows and stagnation in the country's total foodgrains production.

The 'Study on Current Inflation in India' released by Assocham President Venugopal N Dhoot recommended that the government should continue with the import duty relaxation on various food items to tame the inflation.

It further added that the government should temporarily place a limit rather than a ban on exports on some of the critical items that are in shortage, beside opting for a dual pricing policy by having a flexible procurement price, rather than procuring the essential commodities at MSP.

''The sooner the government adopts a dual policy by differentiating between MSP and the procurement price, the better for market stability,'' Assocham study said.

Quoting the food price index calculated by Food and Agriculture Organisation of the United Nations, Mr Dhoot said the prices rose by 40 per cent during 2007 as compared to nine per cent a year before.

He said the price of rice has increased by 227 per cent, wheat by 293 per cent, rapeseed oil by 129 per cent and rape seed by 130 per cent, while crude palm oil prices have gone up by 104 per cent, soya bean oil by 111 per cent and crude sunflower oil by 155 per cent.

Mr Dhoot said there was no justification of banning futures trading, as there is no indication of futures trading causing inflation in the economy.

''The idea is misconceived, and a ban on futures will only make the economy bereft of a potential risk management and price discovery mechanism. May be the Government may put a cap on the exports,'' he said.

The study said India's population is growing at an average rate of 1.9 per cent annually, whereas the growth rates of food grains production have decelerated to 1.2 per cent during 1990-2007.

The consumption of cereals has declined from a peak of 468 grams per capita per day in 1990-91 to 412 grams per capita per day in 2005-06, indicating a decline of 13 per cent.

The consumption of pulses too has declined from 42 grams per capita per day to 33 grams per capita per day during the same period.

During 1998-2007 wheat and rice production have recorded negative annual growth rates--wheat declined by 1.16 per cent and rice by 0.10 per cent.

''Though coarse cereals have grown at the rate of 2.27 per cent, the total cereal growth rate has been pulled down, and has dipped 0.11 per cent,'' the study said.

This has been associated with stagnation in India's gross or net sowing area, and has indeed put our food security in peril, it added.

Futures trading is not responsible for the rise in WPI for cereals, Assocham said adding prices of rice and wheat have increased mainly after February 2007 when futures trading in these commodities had been banned.

On the other hand, WPI for cereals has increased due to a rise in international price of rice, and international price of wheat, and overall increased demand in the economy, the study said.

UNI MP AB BST1842

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