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The fuel favour year for India

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The US$ per barrel (red line) and the rupee-dollar exchange rate (green line) are plotted to the left scale. The rupee per barrel (blue line) is plotted to the right scale. I have used data from the Petroleum Planning and Analysis Cell of the Ministry of Petroleum and Natural Gas - the global crude oil price of the 'Indian Basket' in US$ per barrel.

The US$ per barrel (red line) and the rupee-dollar exchange rate (green line) are plotted to the left scale. The rupee per barrel (blue line) is plotted to the right scale. I have used data from the Petroleum Planning and Analysis Cell of the Ministry of Petroleum and Natural Gas – the global crude oil price of the ‘Indian Basket’ in US$ per barrel.

It started in early August, the extraordinary slide in petroleum prices. Until then, the international crude oil price of the ‘Indian Basket’ (of crude oils, as it is called) had swung between US$ 110 and US$ 105 per barrel.

The rupee-dollar exchange rate, and the effective price of a barrel of crude oil in Indian rupees (both measures also appear on this chart), fluctuated but little for most of the first half of 2014. In early June 2014, the rupee-dollar rate turned around from 59 and has been rising since, while in early July the rupee price per barrel descended from its plateau of 6,300-6,600 and has been dropping since.

The cost of oil-derived energy has had a number of effects upon our everyday lives in the second half of 2014. It has helped the new NDA-BJP government during its first year by dampening overall inflation (the consumer price index) and particularly food price inflation. This has been particularly fortunate for the NDA-BJP government as the deficient monsoon of 2014 has meant a drop in the production of food staples, and market forces being what they are, food price inflation especially would have been well into the 13%-14% range (last quarter 2014 compared with last quarter 2013).

RG_India_petroleum_in_2014_sectionGalloping consumer price inflation has been forestalled by the plunging price of crude oil. The data I have used for this startling chart is courtesy the Petroleum Planning and Analysis Cell (PPAC) of the Ministry of Petroleum and Natural Gas which computes several times a week the “global crude oil price of Indian Basket in US$ per bbl” – which means the average price we pay per barrel for the various kinds of crude oil we purchase.

A barrel of crude oil is 42 gallons or around 159 litres. This crude, when refined, is turned into diesel, petrol, lighter fuels, feedstock for the manufacture of various plastics, and other products. Typically, up to 70% of the oil we buy is converted into diesel and petrol (and carbon from all those exhaust pipes). Also typically, a barrel of crude oil (which is an extremely dense form of packaged energy) contains around 5.8 million BTUs (British thermal units). More familiar to us is the kilowatt hour (or kWh) and these 5.8 million BTUs are about 1,700 kWh – at current national average rates of per head electricity consumption this is worth about 26 months of electricity!

From early August till the end of December the price we paid for a barrel of crude has dropped from around US$ 103 to US$ 54 and correspondingly (factoring in the rupee-dollar exchange rate) the rupee price of a barrel of crude has dropped from 6,300 to around 3,500. Put another way, the INR 6,300 we paid in early August for 5.8 million BTU could buy, in mid-October 7.1 million BTU and by end-December, 10.4 million BTU.

Most of us tend not to be profligate with energy (our electricity comes mainly from the burning of coal, but the sale of automobiles has continued at a steady pace, or so the industry tells us). The question is whether this windfall energy saving (in terms of petroleum energy units per rupee) has been well used by the sector that can spread the benefit the most – agriculture and food. It will take another three months to judge, and we will keep a wary eye for the next quarter on the Indian crude oil Basket.


Written by makanaka

December 31, 2014 at 19:06

What rural India does and doesn’t eat

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How much cereals (rice, wheat, millet, sorghum) and pulses do rural Indians consume in a month? In general, not anywhere near how much they should.

How much cereals (rice, wheat, millet, sorghum) and pulses do rural Indians consume in a month? In general, not anywhere near how much they should.

The circles in this chart represent the rural population of 20 of India’s largest states by population. The National Sample Survey Office (NSSO) divides the rural (and also the urban) population of each state into tenths (they call them ‘deciles’), and the NSS surveys on consumption expenditure tell us how much each decile in each state spends, for example between Rs 800 and Rs 950 a month.

I made this chart using data from the NSS report, ‘Level and Pattern of Consumer Expenditure’ (the 66th Round, which surveyed the population between 2009 July and 2010 June). With 20 states and ten categories each, I had 200 readings to plot, examining the consumption in quantities for cereals and pulses.

Depending on the population of the state, some of those circles represent 3-5 million people! Now here is the grim finding. Of these, 72 do not meet even 75% of the minimum cereals requirement (about 10.4 kg) a month, and 106 do not meet even 50% of the minimum pulses requirement (about 0.6 kg) a month – these are the National Institute of Nutrition recommended dietary allowances. And 43 of these deciles are severely deficient in both.

How can the state explain the existence of these huge deficits in basic nutrition (see the coloured area of the chart, which includes tens of millions) while simultaneously chasing 'growth' as the means to remove those deficits?

How can the state explain the existence of these huge deficits in basic nutrition (see the coloured area of the chart, which includes tens of millions) while simultaneously chasing ‘growth’ as the means to remove those deficits?

For the last week, there has been a great deal of comment and discussion about how the increase in expenditure – especially in rural India – is ‘evidence’ of increasing incomes, of widening prosperity and a general ‘lifting out of poverty’. It is misleading because neither the central government nor its supporters (there are many supporting views to be found in the media) has pointed out that an increase in expenditure will of course take place given the rise in the price of food and fuel.

Comparing what the NSS has surveyed in 2009-10 with its 2004-05 survey, in some areas of expenditure the rupee rise is 300%-400% (such as for the eggs fish and meat, fresh fruit and beverages categories) and it will be useful to extract the quantities behind these increases in expenditure (I will get around to doing this as soon as possible).

In any case, the quantities consumed for cereals and pulses have actually declined for rural and urban citizens. While the proportion of expense, out of total food expense (all-India figures for rural populations), on pulses and on milk (and milk products) has remained roughly the same – 5.6% to 5.2% and 15.3% to 15.2% – the proportion spent on cereals has dropped from 32.7% to 20.2%.

I think this an extremely significant change that can be read together with the two big increases in proportion of spending – on egg fish and meat from 6% to 9% and on beverages from 8.2% to 15%. In the NSS definition, beverages also includes purchased meals and processed food, and it is this conversion of primary cereals (including coarse cereals) and pulses to processed foods that I see as an important factor behind the biggest change in the proportions spent on food in recent years.

India’s 681 million hungry rural citizens

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RG_NSSO_68_MPCE_pic1What do and what can rural residents spend on food and the essentials of living in India? This chart gives us an indication. It is based on new data contained in the latest revelation (my word, not theirs) from the National Sample Survey Office and is titled ‘Key Indicators of Household Consumer Expenditure in India’ (the 68th Round of sampling, for those who follow the extraordinary programme of this sterling statistical organisation).

There is data enough in the volume to inform us, clearly and starkly, that the cumulative impact of several years of food price inflation is hurting households more with every passing quarter. Consider what this new data release tells us:

RG_NSSO_68_MPCE_pic3* That the average rural monthly expenditure per person was lowest in the states of Odisha and Jharkhand (around Rs 1,000) and also in Chhattisgarh (Rs 1,027).
* In Bihar, Madhya Pradesh and Uttar Pradesh, the rural monthly expenditure per person was about Rs 1,125 to Rs 1,160.
* In urban India (not shown in this chart, but I will add to this posting with an expanded update) Bihar had the lowest monthly expenditure per person (called monthly per capita expenditure by the NSSO and abbreviated to MPCE) of Rs 1,507.
* In Chhattisgarh, Odisha, Jharkhand, Uttar Pradesh and Madhya Pradesh, urban MPCE was between Rs 1,865 and Rs 2,060. These six were the six major states with the lowest MPCEs for both rural and urban citizens.

But those are averages, and in this data release, the NSSO has divided its usual ten deciles even further for the lowest and highest deciles. (The decile is the surveyed population divided into tenths, with these being classified by expenditure level.) Doing so gives us a better view of the elastic expense trends in the top ten per cent of the population, the class which is so pampered by the central government. For rural India then, the 5th percentile of the MPCE distribution was estimated as Rs 616 and the 10th percentile as Rs 710 – and these are all-India averages.

[The spreadsheet with the table and chart is here. You can find the highlights of the NSSO study here.]

RG_NSSO_68_MPCE_pic4About half the total rural population is thus estimated to have a MPCE below Rs 1,198. Only about 10% of the rural population reported household MPCE above Rs 2,296 and only 5% reported MPCE above Rs 2,886 (this is using what is called the ‘modified mixed reference period’ or MMRP, in which the person interviewed is asked to recall purchases made over two different lengths of time, for different sorts of goods). The bottom-line is that food accounted for about 53% of the value of the average rural Indian’s household consumption during 2011-12.

This included 11% for cereals and cereal substitutes, 8% for milk and milk products, another 8% on beverages and processed food, and 6.5% on vegetables. Among non-food item categories, fuel for cooking and lighting accounted for about 8%, clothing and footwear for 7%, medical expenses for about 6.5%, education for 3.5%, conveyance for 4%, other consumer services for 4%, and consumer durables for 4.5%.

This ought to be a ringing alarm about access to food for the country’s planners, who are otherwise obsessed with GDP growth and whether India is cosmetically dolled up enough to attract global finance capital. It hasn’t sounded even a muted gong, and even if it had, one stunning inference from this table has been ignored – that this is an indicator of food and multi-dimensional poverty and that millions of rural residents are unable to afford food and basic services.

How so? Look at the chart again. Imagine, at just above the line marking 2,000 rupees, a dotted red line at a level of around 2,070 rupees. That is the equivalent (before the recent fall in the rupee’s value against the US dollar) of USD 1.25 a day, which has (ill-advisedly) been cemented in development wisdom as a poverty line that can be applied in countries like India. Let’s accept that in order to focus on what the new NSSO data tells us.

RG_NSSO_68_MPCE_pic5At the Rs 2,070 level we see that for a relatively prosperous state like Haryana (a former Green Revolution state) about 50% of the rural population cannot spend, per person per month, this amount. The percentage of the rural population below and above this line is similar, more or less, for Punjab (also a former Green Revolution state) and for Kerala (which is not, but has income from economic migrants abroad).

But the entire rural populations of Bihar, Chhattisgarh, Jharkhand and Odisha cannot spend this amount, because they do not earn it. How many is that? Using the 2001-2011 population growth rates (for rural populations of states) this means 98.96 million in rural Bihar, 20.65 million in rural Chhattisgarh, 26.52 million in rural Jharkhand and 36.19 million in rural Odisha are below this line. What of other states with large rural populations?

In Assam, Madhya Pradesh, Uttar Pradesh and West Bengal, 90% of the rural population is below this line and that means 25.23 million in Assam, 49.90 million in Madhya Pradesh, 147.25 million in Uttar Pradesh, and 57.26 million in West Bengal. In Gujarat, Karnataka, Maharashtra and Rajasthan, 80% of the rural population is below this line and that means 28.52 million in Gujarat, 30.66 million in Karnataka, 50.77 million in Maharashtra and 43.55 million in Rajasthan. In Andhra Pradesh and Tamil Nadu, 70% of the rural population is below this line and that means 39.64 million in Andhra Pradesh and 26.56 million in Tamil Nadu.

Taken together those rural populations are 681.72 million (more than twice the population of the USA). They are 78% of India’s 2013 rural population, almost eight out of ten rural citizens.

The 0.05 kilowatt farming human and other strange equations from India

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O mighty tractor, meet puny humans!

One of the Planning Commission of India’s working groups of agriculture concerns ‘crop husbandry, agricultural inputs, demand and supply projections and agricultural statistics for the Twelfth Five Year Plan (2012-17)’ which is a lot to expect out of a single committee, howsoever eminent the members and however luminous their output.

Perhaps that is why their observations especially where the use of (and supply of) energy for farming are so, shall we say, unconventional. The equation is that one (cultivating, farm labouring, roti-eating) human’s output is 0.05 kW, a draught animal (cow or bullock) is worth 0.38 kW, a power tiller delivers 5.6 kW and a tractor rules our districts with a lordly 26.1 kW. [You can get the extraordinary numbers here, in this excel file.]

In a short chapter on energy use in Indian farms, the committee has said: “While developed world mechanised its agriculture to create surplus labour for the industrial sector, in India it has been directed to help farmers and farm worker do their job speedily”. Curious. When I last looked in the districts, there were Escorts, Mahindra, TAFE, Sonalika, Swaraj, HMT, Indofarm and Force tractors. Foreign farm equipment manufacturers like John Deere and Kubota are already here, ready to assist the “farm worker do their job speedily”? Not likely, ready instead to follow the diktat of the central government to replace human labour, send human farm labour on its way to the towns and cities to become obedient consumers.

A bit more than 0.3 kW each, but no match for the diesel beast

But the committee has more to say: “With high quality job, [the farm worker will] acquire additional capacity to achieve timeliness in field operations without much hardship and drudgery.” That is indeed a considerateness I hardly expected to see in this day and age of austere governments and spartan budgets. Hardship and drudgery are constant companions of the cultivator in India – the smaller the cultivator, the more bosom these buddies.

And there is more: “It also helps in achieving precision in metering and placement of inputs for better crop stand, better response to inputs and increased productivity. Farm mechanization imparts dignity to farm work.” Leaves you speechless? It did me. (An electric motor is 3.7 kW and a diesel engine is 5.6 kW, for the complete table, the source of all this encouraging kilowattage is given as ‘Singh et al (2011), Agril. Enng. Today, Vol. 35(2)’.)

The committee has however taken a nostalgic look at the years when India resounded to the “jai jawan, jai kisan” slogan. Its report has reminisced: “Bullocks and other draft animals continue to have relevance in India for socio-economic reasons particularly to marginal and small farmers”. But right away comes the transnational multinational structurally adjusted hard-boiled World Bank-IMF-Prime Minister’s Office-Planned Decommissioning of India approach.

And there is this: “However, animate power per unit energy supply is costlier than electro-mechanical sources. Animals need to be fed and maintained even when not in use and are vulnerable to morbidity and mortality due to disease and pest, paucity of feeds and fodders, harshness of climate etc. With mechanisation, farm power availability has increased, yet a lot of efforts and investments are needed particularly in Eastern and North Eastern states, hill and mountain areas and tribal areas.”

And there we have it, bold and ugly – humans are not fit to cultivate. The age of the tractor has hit rural Bharat with as much force as BMW, Mercedes Benz and Audi have hit the semi-paved streets of Malltown India. Animals are troublesome beasts, humans are worth only 0.05 kw each and tractors are glorious. John Deere, are you here?

Written by makanaka

August 31, 2012 at 14:08

Unctad’s Global Commodities Forum is here

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The United Nations Conference on Trade and Development (UNCTAD), will hold the second Global Commodities Forum in Geneva on 2011 January 31-February 01.

The rationale for the first Unctad Global Commodities Forum 2010 was described last year as centred on developing countries and their dependence on on commodities for their economic well-being. “As demand for commodities in the long term is going to increase, thus posing major challenges for their sustainable and efficient production, there is a very real need to consider how to make the commodities markets more stable and policies better designed, so that the benefits would be more equitably distributed between commodity producers and consumers.” Unctad’s GCF 2010 said then that it was important that an appropriate economic return could be delivered to commodities producers, many of whom are in developing countries.

Policy actions to consider were said to include, inter alia, the development of policies to ensure that countries producing commodities do not face the so-called ‘resource curse’ and, of equal importance, measures that could be taken to mitigate or reduce the adverse effects of price and commodities market volatility, “which cause so much uncertainty and hardship to many of the most vulnerable people in developing countries”.

Moreover, said the Unctad GCF 2010 rationale statement, “there is a clear need to ensure that commodities markets are more effective in serving the interests of the real economy, and that financial market speculators do not, through excessive influx or unwinding of liquidity in commodity futures markets, disturb the performance of commodity producers, consumers and intermediaries”. (We will have to pay close attention to the proceedings of GCF 2011, and not only the statements or resolutions, to judge how far they have progressed from last year’s positions.)

Unctad said then that markets should serve the interests of these stakeholders whose livelihoods are involved in commodities production, shipment, consumption, rather than being subject to manipulation directed at the single-minded purpose of providing a short-term financial return. “Solutions must be found to ensure that the prevailing terms of trade between countries are balanced and that regulatory interventions are optimized, with a view to protect the most vulnerable stakeholders without providing an impediment to trade.”

Now, Unctad has described GCF2011 as focusing on the instability of mineral and agricultural markets and their interconnectedness, the effectiveness of commodity policies and the sustainability of the production and use of commodities, long-term energy and food security, and the role of innovation and early warning systems. “The second meeting of the GCF, organized by UNCTAD with the support of its partners, including the Governments of China, France and Switzerland, as well as Global Fund for Commodities, is a major multi-stakeholder meeting to discuss and find better solutions to perennial problems of the commodity economy,” stated Unctad. “The GCF will also address such key issues as the performance of commodity supply chains and the state of business practices and innovation.”

From the GCF 2011 programme material – themes of the second meeting of this Forum will include the following plenary and parallel sessions:

Plenary A: The State of energy markets: lower volatility and a new price zone for hydrocarbons (A1), The state of agricultural markets: the drivers of increased volatility (A2) The state of selected metals market: fundamentals, non-fundamental factors and terms of trade (A3) Commodity markets’ volatility and interconnectedness (A4), Overcoming market volatility through better regulation, data and transparency (A5); Commodity policy challenges for oil and gas-exporting countries (A6) Commodity policy challenges for minerals and metal exporting countries (A7) Trade and other policy options for modernizing agriculture in developing countries (A8).

Parallels B: Long-term sustainable supply & demand and technological innovation: hydrocarbons and other energy (B1), Long-term sustainable supply & demand in the energy sector: developing early warning systems (B2), New technologies and commodities: agriculture (B3) Long-term sustainable supply and demand and technological innovation and early warning systems for food security (B4), New technologies and commodities: energy (B5); Forecasting trends and strengthening early warning systems for producers, innovators and other supply chain participants (B6).

Parallels C: Current trends and next frontiers for commodity finance (C1), The emerging regulatory environment and trade finance: new challenges and opportunities for banks and other financiers (C2), Support institutions for commodity finance (C3), Shipping and international trade in commodities (C4) Commodity futures markets: do they obscure underlying market realities, or provide long-term signals and management tools? (C5) Risk management in commodity markets: paper and physical markets and the realities of commodity exporters (C6).

Oil’s up, oil’s down, it’s France, it’s China

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It’s up. Crude oil rose on speculation that growing French demand for imported fuel because of a strike will reduce stockpiles elsewhere, reported Bloomberg. France is importing “massive” amounts of fuel and tapping reserves to alleviate service-station shortages, Environment and Energy Minister Jean-Louis Borloo said today. The French government last week authorized the use of fuel reserves after Total SA announced it would halt its five active refineries in France and other refiners took measures to reduce output. Workers at the country’s 12 crude-processing plants have extended their labor action since Oct. 12 to protest a plan to raise the minimum retirement age.

It’s up. Crude oil is poised to reach $90 a barrel by the middle of December, according to technical analysis by Lind-Waldock in Chicago. The December contract, which became the front-month contract yesterday, has been trading in an uptrend, a pattern of higher peaks and higher valleys, since touching a low of $75.10 on Sept. 23, Blake Robben, a strategist at Lind-Waldock, a division of MF Global Ltd., said in an interview.

It’s down. Crude oil may decline next week after China’s oil processing grew the least in 18 months as government measures to cool the economy reduced fuel demand, a Bloomberg News survey showed. Fourteen of 30 analysts, or 47 percent, forecast crude oil will fall through Oct. 29. Eleven respondents, or 37 percent, predicted prices will be little changed and five estimated an increase. Last week analysts were split over whether futures would drop or climb. Data from the China Mainland Marketing Research Co. yesterday showed that refineries in the world’s biggest energy- consuming country processed about 8.5 million barrels a day in September. That’s a 6.6 percent gain from a year earlier, the smallest increase since March 2009.

It’s down. Saudi Arabia has rejected claims that the era of cheaply produced oil is over, saying the world’s largest field in the kingdom’s eastern province still holds more than many countries. Many of the largest oilfields in Texas and the North Sea have passed their prime, forcing companies to target more costly prospects such as bitumen deposits in Venezuela, Canadian tar sands and ethanol. But Ali al Naimi, the Saudi Arabian oil minister, pointed to the Ghawar field’s 88 billion barrels of remaining reserves and the kingdom’s large cushion of spare pumping capacity as signs that oil was still abundant. “”I am sorry to disappoint people but the era of easy oil is not over,”” al Naimi said at a conference held in the Saudi capital to celebrate the 50th birthday of OPEC. “”How can you say the era of easy oil is over when we still have 88 billion barrels in the Ghawar field? That is more than many countries in the world. You can dismiss the notion that easy oil in Saudi Arabia is gone.”” The Ghawar field, measuring 280km by 30km, is by far the largest conventional oilfield in the world. Although details of the field’s performance are not made public, it is believed to have produced more than 65 billion barrels already since production began in 1951.

It’s up. Any oil price fall should be seen as an opportunity to buy the contract as the next move in the market is likely to be a rally, JPMorgan Chase & Co. said.“The signal that the next leg higher is imminent will be tighter Dubai forward spreads and a narrower Brent-Dubai spread,” Lawrence Eagles, head of commodity strategy in New York, said in a monthly oil market report. JPMorgan said it expects the dollar to weaken by four to five percent over the next six months, giving oil a boost. A declining dollar increases the appeal of energy as an inflation hedge. The strength in crude is also bolstered by rising demand in several regions, the bank said. A narrowing spread, when Dubai oil rises closer to North Sea Brent, typically shows increasing Asian demand. The Brent-Dubai exchange for swaps, or EFS, for December narrowed 12 cents to $2.40 a barrel today, according to data from PVM Oil Associates. The EFS is the price difference between Brent futures and Dubai swaps contracts and signifies Brent’s premium relative to the Middle East grade. The December-January Dubai spread shrank to minus 36 cents from minus 80 cents on Sept. 27, according to data compiled by Bloomberg. “The key risk is that we are being too cautious and that the threat of $100 a barrel oil that is implicit in our fourth- quarter 2011 oil forecast arrives much sooner than we expect, driven by not only a weak dollar, but also by rampant Chinese and emerging market demand, the rebuilding of French strategic stocks, and an upward bias to food prices,” Eagles said in the report.

Written by makanaka

October 25, 2010 at 19:28

Food inflation in Asia and India, and a word about price indexes

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Vendors in Mapusa, Goa

Vendors in Mapusa, Goa. The middle basket contains 'nachne', local millet


The question in Asia again is food inflation. Entering the last quarter of 2010, news reports from South and South-East Asia cite continuing high food inflation as a persistent worry for consumers. The food weighting in Asia’s consumer price indexes is mostly high. China, India, Indonesia and Thailand have CPI weightings of 33%-46% for food.

Hence, persistently higher food prices pose a bigger risk of a rise in inflation expectations and wages in these countries as compared with higher per capita income economies on a relative basis, says the late September Global Economic Forum briefing from Morgan Stanley. “While job growth was affected by the latest global financial crisis, with GDP growth back to trend line and employment levels having recovered sharply, the risk of a rise in inflation expectations is significant. While employment statistics in the region are not very transparent, given the GDP growth trend, it appears that employment growth should have been strong.”

China, India and Indonesia together account for 40% of the global population. Any small increase in demand from these countries in the form of imports tends to push up global prices. The recent crop failure in India and its attempt to import sugar are a case in point. Moreover, there are some crops that are peculiar to local markets with very little global supply. For instance, in the case of India last year, the country fell short of pulses (lentils), and it was not really possible to import the crop even if the government had wanted to. Indeed, the top four (in terms of population) countries in the region (China, India, Indonesia and Thailand) are all net exporters of food items. All four countries tend to maintain inventories for staple items like rice and wheat, and have public distribution systems to ensure availability of these essential items at a reasonable price. Most countries in the region subsidise food for the poor.

Against this background, two recent speeches from senior figures in India’s central bank, the Reserve Bank of India, are worth examining closely. First, in ‘Managing the Growth-Inflation Balance in India: Current Considerations and Long-term Perspectives’ the deputy governor of the RBI Dr Subir Gokarn talks directly about food inflation (he gave the speech on 05 October 2010 at The Private Equity International India Forum).

“The inflation rate, which was briefly negative in the middle of 2009, began to accelerate rapidly later in the year. This upward momentum continued into the first half of 2010, with double-digit inflation persisting for a few months. The rapidity of the transition was surprising, given the fact that the recovery in growth was just getting under way and, importantly, the global situation was still very uncertain. However, the reason for the sharp increase was that all the possible drivers of inflation were simultaneously contributing. Each one by itself may not have resulted in the outcome that we saw, but all three working together resulted in a rather sharp acceleration. Food prices rose sharply because the monsoon of 2009 was deficient in most parts of the country, impacting agricultural production. However, there are, I believe, longer term forces at work on food prices, which are a matter of concern.”


UN Millennium Development Goals Report 2010 / UNICEF Photo

UN Millennium Development Goals Report 2010 / UNICEF Photo


Next, in a speech titled ‘Perspectives on Inflation in India’, executive director of the RBI, Deepak Mohanty (on 28 September 2010 at the Bankers Club, Chennai) said that the Reserve Bank is concerned over “the unacceptably high inflation rate”. Mohanty dwelt awhile on the Indian government’s new wholesale price index series.

“In the meanwhile, the Government has also released the new series on the Wholesale Price Index (WPI) changing the base year from 1993-94 to 2004-05. In terms of change in the relative weight of major commodity groups, the share of primary articles has gone down by 1.9 percentage points, which has been compensated by increase in the share of fuel group by about 0.7 percentage point and manufactured products by 1.2 percentage points. There has been a reduction in weightage of primary food articles and manufactured food products by 2.6 percentage points in the new series to 24.3 per cent from about 26.9 per cent in the old series.”

“Second, notwithstanding a significant reduction in weightage, the food inflation in the new series is higher than in the old series. This is because of change in the consumption basket in favour of protein-rich items such as egg, meat and fish where price rise has been high apart from milk and pulses. Third, the non-food manufactured products inflation is lower in the new series than in the old series. This is because of a substantial overhauling of the basket with the introduction of a number of new items. For example, the new series has 417 new commodities of which 406 are new manufactured products. Fourth, the new series has wider coverage. For example, the number of price quotations has increased from 1,918 in the old series to 5,482 in the new series. The new series, therefore, is better representative of overall commodity price inflation.”

What is curious is that these trends have taken place during a phase of rapid growth in India’s formal economy. Gokarn explained that what was most significant from the monetary policy perspective was the growing visibility of demand-side pressures. He examined the price dynamics of the manufacturing sector – overall and without the food processing component. The latter, he said, has been used by many analysts as a reasonable proxy of demand-side inflation, which is the phenomenon that monetary policy can and should influence. Both sectors he said, and particularly non-food manufacturing inflation, “show a tremendous acceleration from a significantly negative rate of inflation during 2009 to reach rather worrisome levels by the middle of 2010”.

Mohanty finds that the new series of WPI inflation marks a major change in terms of scope and coverage of commodities and is more representative of the underlying economic structure. As per the new series, the manufactured products inflation is lower than what was seen on the basis of the old series, he said. The food price inflation, on the other hand, is higher than what was seen on the basis of the old series. “The high level of food prices is The 100th postindeed a matter of concern as the prices of protein-based items, which have a higher share in the consumption basket, are showing larger increases”. Moreover, Mohanty said, there is continuing shortage of food items such as pulses and edible oils. “If the supply response doesn’t improve, there is a risk that food price inflation could acquire a structural character”.

India fuel price rise provokes Left

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The rise in fuel prices in India has led the four Left parties – Communist Party of India (Marxist), Communist Party of India, All India Forward Bloc and Revolutionary Socialist Party – to issue the following statement:

The decision of the UPA government to inflict a steep rise in the prices of petrol, diesel, kerosene oil and cooking gas is a cruel blow against the people who are already suffering due to the runaway increase in the prices of food and essential commodities. The price of petrol has gone up by Rs. 3.50 per litre, diesel by Rs. 2 per litre, kerosene oil by Rs. 3 per litre and cooking gas by Rs. 35 per cylinder.
This callous decision of the government has come at a time when the food inflation rate is around 17 per cent and the general inflation rate has reached double digits. India has the dubious distinction of having the highest rate of consumer price inflation in the world.
The UPA government has decided to deregulate the price of petrol and leave it to the market to determine. Going by the Kirit Parikh Report, the government is going to decontrol prices of all petroleum products, including diesel. This is going to prove disastrous for the economy and the country.
The government is giving false arguments to justify these measures. The prices of petrol and diesel were increased by Rs. 3 per litre only three months ago at the time of the Union Budget. International oil prices have not risen substantially in this period. Neither is the government prepared to rationalize the taxation structure on petroleum products which is adding to a price of petrol and diesel in a large measure.
It is a myth that such a step is being taken to protect the public sector companies from under-recoveries. The so-called under-recoveries are entirely based on notional prices calculated without any reference to the actual cost of production. In fact, the deregulation is only to help private companies who withdrew from the market because of the government price controls. Now they will be free to enter the market to make profits.
By deregulating petrol prices, the government has opened the way for continuous increases in the prices of petrol. By increasing the price of diesel and kerosene oil, the farmers and the poorer sections are going to be badly hit. The LPG increase will further burden the middle classes.
The Congress-led government has shown its callous and anti-people character by these measures. The Left parties demand the immediate scrapping of the price increases. They call upon all their units to jointly launch protests against these hikes.

The statement is signed by Prakash Karat, General Secretary, CPI(M); A B Bardhan, General Secretary, CPI; Debabrata Biswas, General Secretary, AIFB; T J Chandrachoodan, General Secretary, RSP

What they spend their rupee on

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Volunteers at a rally, Mumbai, India

Volunteers at a rally, Mumbai, India

The data have just been released of the National Sample Survey Organisation’s 64th Round, on Household Consumer Expenditure in India, 2007-08 (survey period July 2007 – June 2008). The Ministry of Statistics and Programme Implementation, Government of India, has put out the findings in its report No 530. A sample of 31,673 rural households and 18,624 urban households spread over the entire country was surveyed in the Consumer Expenditure Survey of the 64th round. The highlights:

Level of consumption in 2007-08

1. Average Monthly Per Capita Consumer Expenditure (MPCE) in 2007-08 was Rs.772 in rural India and Rs.1472 in urban India at 2007-08 prices. About 65% of the rural population had MPCE lower than the national rural average. For urban India the corresponding proportion was 66%.

2. The survey estimated that in 2007-08, around one-half of the Indian rural population belonged to households with MPCE less than Rs.649 at 2007-08 prices. In 2006-07, the corresponding level of MPCE for the rural population had been estimated as Rs.580.

Rytu (farmer) of north Karnataka

Rytu (farmer) of north Karnataka

3. In urban India, one-half of the population belonged to households with monthly per capita consumer expenditure less than Rs.1130. In 2006-07, the corresponding level of MPCE for the urban population had been estimated as Rs.990.

4. About 10% of the rural population had MPCE under Rs.400. The corresponding figure for the urban population was Rs.567, that is, 42% higher. At the other extreme, about 10% of the rural population had MPCE above Rs.1229. The corresponding figure for the urban population was Rs.2654, that is, 116% higher.

5. Real MPCE (base 1987-88) was estimated to have grown by about 21% from 1993-94 to 2007-08 (that is, over a 14-year period) in rural India and by about 36% in urban India. The annual real terms increase from 2006-07 to 2007-08 in average rural MPCE was 2.2% and in average urban MPCE was 5.4%.

Pattern of consumption in 2007-08 and share of food

1. Out of every rupee of the value of the average rural Indian’s household consumption during 2007-08, the value of food consumed accounted for about 52 paise. Of this, cereals and cereal substitutes made up 16 paise, while milk and milk products accounted for 8 paise.

Crowds at a religious gathering in Mumbai, India

Crowds at a religious gathering in Mumbai, India

2. Out of every rupee of the value of the average urban Indian’s household consumption during 2007-08, the value of food consumed accounted for about 40 paise. Of this, cereals and cereal substitutes made up 9 paise, while milk and milk products accounted for 7 paise.

3. While the share of most of the food item groups in total consumption expenditure was higher in rural India than in urban India, fruits and processed food were exceptions. For non-food item groups, the share was usually higher in urban India. The noticeable differences were in case of rent (urban share: 6%, rural share: 0.4%), education (urban: 7%, rural: 3.7%), consumer services other than conveyance (urban: 7.8%, rural: 4.5%), and conveyance (urban: 6.4%, rural: 4%).

4. The share of milk and milk products in total consumption expenditure was found to rise steadily in rural India with MPCE level from under 3% in the bottom decile class to nearly 10% in the ninth decile class. The share of fuel and light was about 12% for the poorest decile class of the rural as well as of the urban population and fell steadily with rise in MPCE to 7% for the top decile class in rural India and to 6% in urban India.

5. The share of food in total consumption expenditure of rural households varied among the major states from 41% for Kerala and 44% for Punjab to 58-60% for Orissa, West Bengal, Jharkhand, Assam and Bihar. In the urban sector the share of food expenditure varied between 36% (Kerala and Chhattisgarh) and 47% (Assam and Bihar).

6. Tobacco was consumed in as many as 61% households in rural India compared to 36% households in urban India. About 62% of rural households and 59% of urban households were estimated to have consumed egg, fish or meat during the last 30 days. In non-food items, consumption on account of entertainment was reported by 28% of rural households and 63% of urban households. Consumer expenditure for rent was reported by only 7% of rural households and 38% of urban households.

India’s food price inflation in high gear

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There has been no shortage since November of news reports and analyses about the food inflation. The 19% annual rise in fact masks widespread individual urban centres’ price shocks and individual food item trends. I have tried to unpack the year-on-year ‘national’ food inflation number using data from the Ministry Of Consumer Affairs, Food and Public Distribution – Department Of Consumer Affairs (Price Monitoring Cell). My guess is that this data is an under-estimate but is useful for spotting trends.

I collected prices for the 36 cities tracked by the PM Cell, monthly from 2007 December. Based on a small basket of staples (rice, wheat, atta, tur dal, sugar, gud, tea, milk, potato, onion, salt) a crude index shows that in 33 out of 36 cities, the 24 month (07 Dec to 09 Dec) rise in prices of items in this basket is more than 24%, and that in 23 cities it is more than 50%.

Food inflation 2009 over 2007 in Indian cities

Food inflation 2009 over 2007 in Indian cities

About price increases in rural settlements I can find no organised information at all, although direct experience in western Maharashtra, Karnataka and Goa tells me that a staples basket can cost up to 2-3% more than in urban areas. (Agmarknet collects and maintains detailed mandi prices for farm produce but there is no comparable effort for rural retail food staples.)

The National Sample Survey 61st Round (2004 July-2005 June) on ‘Household Consumer Expenditure in India’ put down the finding that out of every rupee that the average rural Indian spent on household consumption, 55 paise was spent on food and mainly:
18 paise was spent on cereals
8 paise on milk & milk products
6 paise on vegetables
5 paise on sugar, salt & spices
5 paise on beverages, refreshments, processed food, purchased cooked meals, etc

Of the non-food expenditure 10 paise was spent on fuel for cooking and lighting.

I have tried to maintain this weightage in my calculation, but it is really no more than a crude reckoning because I haven’t been able to spend the time to clean up the publicly available data – querying the website database of Dacnet (Dept of Agriculture and Cooperation) or FCAMin returns report formats that are terribly messy, even though they contain useful data. (Although I think there may be differences even between these for the same foods and same date ranges.)

Based on what I have seen and heard on the field in Karnataka, Goa and western Maharashtra (and learnt about Gujarat and eastern UP from others) the available food basket seems to be shrinking (the so-called ‘coarse’ cereal group is conspicuously less), and where families have young and teenaged children there is pressure to buy processed and packaged snack foods (which is really a blight in our small rural markets). There are all sorts of oddities about the form that food takes in these markets – the price of a 50 gram pack of biscuits for example (Parle Glucose is the standard) has hardly moved in the last 3-4 years yet at the same point-of-purchase end, look at the way the prices of ground wheat have moved.

Then there’s fuel and transport to account for, more about which you’ll find here. This question needs much more work in 2010 to strengthen some of the reliable data we have with updates, and to try to build in what we see and hear and sense from conversations with those who live and work in all those tahsils and talukas and blocks and mandals. I feel very strongly that we are lacking in our data the presence and impact of the many linkages that connect and influence the rural farming/labour household. Many of the measures we have have served us well but I think need to be supplemented – how to integrate the lessons and findings from the comprehensive National Family Health Survey, the Sarva Shiksha Abhiyan, the many studies into the income-providing measures of NREGA.

Even though we worry about what the rural/urban poor household must spend on, the attraction to buy mobile phones amazes me. I have met young men who earn around Rs 4,000 a month but who have bought Samsung mobile phones costing Rs 5,000! Imagine spending more than a month’s income on a phone, I asked them, but they saw nothing worrying about their expenditure. Retailers who sell mobile phones used to keep the low cost and hardy Nokia phones which 3 years ago cost around Rs 1,700-1,800 (mine is still working), but not any longer, or they work at discouraging those who ask for the relatively cheaper phones. Much more than the hundred-dollar laptop we need the thousand-rupee mobile phone.

The image is of a chart I made for the project group I work with (part of the National Agricultural Innovation Project, it’s called Agropedia and you can read more about it here). This chart helps point to some patterns (you can download the hi-res image here). I’m curious for example about Gujarat, whose grain and commodity traders have a long and murky history of hoarding. The North-Eastern cities could be insulated to some extent from the regional transport subsidy (road and rail). Cities in the Deccan are relatively better off than North Indian cities. The big difference between Chandigarh and Mandi is puzzling.

In his hugely interesting paper, ‘India And The Great Divergence: Assessing The Efficiency Of Grain Markets In 18th and 19th Century India‘, Roman Studer (University of Oxford, Discussion Papers in Economic and Social History, Number 68, November 2007) has written: “Prior to the mid-nineteenth century, the grain trade in India was essentially local, while more distant markets remained fragmented. This is not to say that no grain was traded over longer distances, but the extent was very limited, as the prices from some 36 cities all over India still exhibited various characteristics of isolated markets.”

“First, annual price fluctuations were extremely high. Second, differences in price levels between markets were very pronounced and persisted until well into the nineteenth century. Third, apart from neighbouring villages or cities, price series from different markets did not show comovements at all.” Studer looked at century-old data, but we still have 36 cities to tell us about staple food retail prices! Also, the three characteristics he mentions can be seen today too.

Happy New Year!