Understanding Inflation through Graphs

THE FIGURES, GRAPHS TAKEN FROM INDIA TODAY WHICH CONDUCTED EXTENSIVE RESEARCH BASED ON MARKET DATA AND GOVT DATA. 

Also, read my earlier posted article on Agricultural statistics at a glance. It is definitely one of those articles that receive maximum hits on my blog.

Our demand has increased, but productivity is still 2,200 kg/hectare w

hile China uses hybrid rice that allows it to produce 10,500 kg/hectare (ALMOST 5 Times as India's). Look at the price rise over 10 years

Our wheat production has increased but no proper storage mechanisms allow it to rot and the corrupt PDS won't let it reach the poor thereby spiralling prices.

 

  

Pulses required : 18 million tonnes Pulses Produced: 13 million tonnes

India is the LARGEST PRODUCER,  IMPORTER AND CONSUMER of pulses. The middle east and other countries produce < 5 million tonnes. Hence, when we import global prices and local escalate.

We never have increased productivity and is the same output as in 1951.

GOVT Decides the price, sale and if sugar needs to be imported or exported.  India is 2nd largest producer of sugar and when we import, global prices escalate. Best thing to do is decontrol sugar.

 We could have been self-sufficient with edible oil, but due to poor oil seeds and low productivity, we are seeing the crisis.

Shortfall : 11 lakh tonnes to 43 lakh tonnes (from 1996-2008)

Our Consumption increase: 76 lakh tonnes to 120 lakh tonnes (from 1996 - 2008)

Output: 175 million tonnes and is 2nd largest producer in the world.

However, 70,000 Crore worth of produce is wasted because of storage issues and Govt not opening to retail reforms by which foreign companies can start processing the fruits/vegetables and ensure farmers get good price and there is no artificial scarcity. Retail outlets are much better than middlemen in many ways esp w.r.t prices.

When govt manipulates MSP (Minimum Support Price) prices of the essential items increase or decrease. this has to increase so that farmers get a fair share. Some figures:

RICE:

Rs.580/quintal to Rs. 1030/quintal => Price increased from Rs.13 to Rs.23/kg

WHEAT:

Rs.620/quintal to Rs.1100/quintal => Price increased from Rs.8 to Rs.14.5/kg

This subsidy bill  - i.e giving lower price to Below and Above poverty Lines costs the Govt Rs.90,000 Crore every year

Govt should really do contract farming, allowing companies to lease the land, ask farmers to grow and give them a fair price based on rates in the market. Pretty much like Public private participation that has boomed highways sector.

Here's what experts from across the country give their opinions to India today which conducted extensive study

THE BITE VIEW   Board of India Today Economists gives its views on how to bite the bullet on runaway inflation
WHY PRICES ARE RISING?
BIBEK DEBROY SECRETARY-GENERAL, PHDCCI • Industrial production capacity exhausted • Controls on imports of agro products • Real estate, capital, skills in short supply • Lack of agri reforms • Expectations fuel further inflation	AJIT RANADE CHIEF ECONOMIST, AVB GROUP • Zero growth in food production • Money supply up on rise in capital inflows • Inflation is a global problem • Rising input costs • Inflation in services like education, health	INDIRA RAJARAMAN MEMBER, ICRIER BOARD • Low foodgrain productivity • Overheating in some industrial sectors • Accumulated impact of fuel prices • The impact of VAT • Global inflation in inputs such as steel, zinc
SIDDHARTH ROY ECONOMIC ADVISER, TATA GROUP • Excess demand • Supply rigidities, poor output, imports • Income growth is driving food demand • Global inflation in raw material cost • High petro tax robs low crude price benefits	SHANKAR ACHARYA MEMBER, ICRIER BOARD • Accelerated growth and demand pressure • Medium-term weakness in agri growth • Mismanagement of wheat stocks • Global price rise due to growth in China • Expectations fuel rise

HOW TO REIN IN THE RISE?
• Don’t over-react and jack up interest rates • Free up agri trade • Introduce farm sector reforms • Eliminate middlemen in agriculture • Free up real estate sector, privatise PSUs	• Reduce import, excise duties, taxes • Make rupee stronger • Lower money supply • Free up food imports • Open up supply bottlenecks in sectors —from real estate to food products	• Raise farm productivity • Cut non-agri import tariffs • Monitor buoyant capital inflows • Get set for CRR hike • Enable food imports for price control
• Remove supply side constraints • Higher collections should enable tax cuts • Invest in agriculture • Use imports to tackle speculation • Calibrate demand management	• Measured approach to monetary policy. • Import foodgrains, on public account • Avoid adhocism like petrol price cut • Cut customs on final consumer products • Avoid panic reaction

Why vegetable prices are soaring?

These days one of the statements commonly heard on the streets of India is - "Oh..God..Prices of tomatoes, potatoes etc have increased...Can't help it...but shell more and buy". How many of you ever wondered what and why this is happening?

The AAM AADMI Govt has become KHAAS AADMI. Looks like we have to see vegetables in show cases and not in reality in few years from now if prices keep escalating. Prices will increase ,but not exponentially and certainly not all the time. The quantum jumps all of a sudden as happening today in the market is alarming and uncalled for.

Even when inflation was negative, vegetable prices reached the skies. From and inflation of 20% we have come down to 17%, but that's not checking the prices. Families have to begun to reduce their intake in daily meals.

First of all, let us get some facts straight.

1. If food prices are increasing, it means that demand is more. India is growing. People now have more money than ever before. This is more true w.r.t cities where income levels are increasing and more products are available to eat. It is also true wr.t rural India as the revolutionary National Rural Employment Guarantee Program is giving sufficient money to a large people for working 100 days.
   
2. Subsequently, our agricultural production has not grown and that is the most unfortunate. Our per hectare yield productivity is abysmally low compared to China (already reflected long back in my blog). Agriculture in many parts still lies on old, conventional, traditional method of farming and are unaware what crop must be grown on what soil and at what time.
3. People in cities esp have begun to eat more pulses, vegetables, milk, meat eggs than the traditional cereals whose production has gone abysmally low. Pulses are not heavily grown in India, but more in the Middle East which we import.
   
4. We no longer live in "Green Revolution" era. The fertile Punjab is no longer as fertile as it used to be. The excess water, pesticide usage has rendered land useless thereby more productivity is impossible.
5. There is a huge shortage of water and electricity in different parts. Gujarat is a standing example of how it has been able to overcome this deficit in numerous ways that media never wants to highlight. Media is more interested in projecting only negative news.
   
6. The already fragmented supply chain has become more and more complicated because of 2 factors - (i)Essential Commodities Act (2002) and the (ii) growing number of organized retails like Reliance Agro, Godrej Foods, Sunil Mittal's Field Fresh (with Rothschild), ITC, Cargill, Dabur, HLL Amalgam Foods, Radhakrishna, DCM Shriram, Tata group and many others.

Let's understand how these factors come into play and how prices are going northwards.

PS: The prices are just a number not reflecting accurately on ground and neither is the difference. The price numbers are used just to show that how randomly prices are fixed without any calculations/formulae involved making matters even worse for me as a blogger or for a consumer buying these.

Let's take ONION as the product as it is a very common and a daily item on the dining table.

1) Farmer at his farm calculates (based on his input costs of fertilizers, pesticides, water, electricity etc) Rs. 5/ kg

2) Goes to mandi (vegetable marts where all farmers come to sell) and plans to sell for Rs.6/kg

3) The mandiwala says he will buy for Rs.5.50/kg and not Rs.6/kg.

The farmer desperate to get money (as his land, equipment everything could be under mortgage) agrees to do so.

Now, the mandiwala has 2 scenarios to consider:

4) Scenario 1: The supply is sure.

• There is adequate supply of onions. So, decides to sell at Rs.6.50/kg i.e Rupee 1 as profit per kg.
• The retailers buy from these mandis and sell at Rs.8/kg.
• The retail chain stores buy, package them and sell at Rs.10/kg (making huge profits and sell explaining that packaging and processing costs must be borne)

So, the end customer pays the whole amount either Rs.8 or Rs.10 and farmers don't get any benefit. They go under losses so is the customer

Scenario 2:
The supply is unsure because of rotten crop, low production etc.

• Now, mandiwala sells at Rs.1o/kg.
• The retailers buy from these mandi's and sell at Rs. 12/kg.
• The retail chain stores buy, package them and sell at Rs.15/kg.
• This difference may even double and there is no control on this price.

Today, dals are being sold at Rs.100/kg or even more while the farmer gets Rs.20/ or more. The remaining 80 is being eaten up by middlemen or mandiwala.

5) Following Scenario 2 as in Step 4, really there are black marketeers, hoarders, speculators, rice millers, agents, traders who buy in huge quantity and don't let the products come into market creating further supply scarcity and prices now go double or triple. So, say a hoarder buys at Rs.10/kg and accumulates huge amount, supply is affected and prices begin at Rs.20/kg and that's when hoarders release and make money.

Now coming to the problem:

The APMC Act - Agriculture Produce Marketing Committee makes it mandatory for farmers to sell at these Marts. But why this obsolete mechanism?

In 2002, the then NDA government led by Vajpayee passed ESSENTIAL COMMODITES ACT by which the essential commodities could be traded like shares in a stock market and farmers would get price on levels with international ones so that it benefits farmers. However, this was true and good when supply was assured. The rule also was this had to be done only after the Government fills its godowns (to be distributed later through Public Distributed System - PDS) to everyone.

In 2004, when NDA govt fell and UPA came to power, the shallow, narrow and money minded corrupt Sharad Pawar took over this agricultural ministry and ruined the farmers, markets and the economy. Instead of amending the act when food production went low, he allowed it to be speculated in the markets increasing the prices even further when already supply was low. (Productivity had hit a new low and bad monsoons continued to wreck havoc in the supply chain)

Under consistent Left Pressure, forward trading of essential commodities was banned. Now, still hoarders continue to play a role because Government is least bothered to fill its godowns before allowing hoarders to acquire them. Every time state governments have been asked to arrest such people, but in a system where law and order is the worst and a nightmare, it will never happen.

Let's get some statistics:

This is what BJP and Mayawati along with Left parties are quoting:

According to government figures, the years 2007, 2008 and 2009 taken together saw the production of 2348 lakh tonnes of wheat. The government boasted that the FCI(Food Corporations of India) godowns are overflowing. Despite this, the government imported wheat at the rate Rs 19 per kg in 2007. Now the same wheat is being made available to the consumers at Rs 24 per kg. SO, WHO IS EATING THE MONEY IN BETWEEN IF WHEAT IS IMPORTED ON ZERO DUTY??

Government records say that there was a record production of 991 lakh tonnes of rice in 2009, but the farmer’s share was only Rs 10 per kg out of the market prices of Rs 48 per kg. Who’s pocketing the remaining Rs 38?

Because of shortage of sugar, Mr. Pawar imported sugar at zero duty. They imported at Rs. 30/kg, but the consumer is paying Rs.45/kg...So, how come a difference of Rs.15??

Here's a detailed piece of news explaining how Sharad Pawar is helping sugar mills and agri-businesses and not helping farmers or end consumers. The report infuriates me even further.

SHARAD PAWAR MAY NOT BE AN ASTROLOGER BUT HAS BECOME A SPECULATOR:

Sharad Pawar said - "I am not an astrologer to predict prices". Then how is it he can say MILK Prices are going to increase...

Remarks like this only helps hoarders and milk supply gets affected.

SHARAD PAWAR MUST ANSWER AS TO WHY HE HAS BECOME SO PASSIVE, UNAACOUNTABLE AND WHY HE HAS MONEY AND TIME FOR BCCI MEETINGS AND MATCHES? HE IS NOT FIT TO REIN IN PRICES AND TALKS OF BEING PRIME MINISTER ONE DAY. Mr. PAWAR IS UNFIT AND ABSOLUTELY PATHETIC IN HANDLING MATTERS.

Food is the most essential commodity and if one can't manage or control the supply management chain, at least attempt. If you sit passive, is this what one has elected this govt for?

Solution:

There is nothing innovative. Already, Gujarat has implemented so many things which have improved efficiency in agriculture w.r.t TECHNICALITIES NOT LOAN WAIVERS which don't help farmers. Here's what the Parliamentary Standing Committee under UPA Govt came up with and govt has no time to implement it. This is not a state govt issue, but central govt issue which impacts the states. So, the Central govt must pass the following recommendations made both by - M.S Swaminathan (Father of Green Revolution) and Parliamentary Committee consisting of experts from both parties Congress and BJP.

In the short-term, some of the measures suggested by the Parliamentary Standing Committee on Finance could be implemented forthwith. These include: a comprehensive food pricing and management policy; stern enforcement measures to curb hoarding and speculation; ban on diversion of cultivable/agricultural land for industrial purposes, including SEZs; and creation of adequate buffer stocks of essential commodities.

Among other measures, serious efforts would be needed to ensure: (a) eased contract farming rules and retail reform aimed at giving farmers a direct access to markets by eliminating the middlemen wherever possible; (b) greater official encouragement for setting up of cold storage facilities and agro-processing units; (c) promoting local markets and integrated food value chains connecting farmers to processing units and big retailers; and (d) amending the Essential Commodities Act to effectively check hoarding and speculation.

Further References:

http://www.outlookindia.com/article.aspx?262839
http://www.outlookindia.com/article.aspx?263369
http://www.theindiastreet.com/vegetable-prices

Rising Bihar: a miraculous or expected growth?

When one would think of BIMARU states namely - BIhar, MAdhya Pradesh, Rajasthan, Uttar Pradesh - the first thing that comes to one's mind is the social and economic backwardness of these states. For years, corruption and bad governance never changed these states even while other states of India were leaping ahead. However, Bihar and Uttar Pradesh continued to be the worst performers and hence Indian national growth always lagged behind.

There was no news complete without the news of kidnapping, extortion, ransom from Bihar a few years ago..but today there are fewer cases than they were earlier. What a sudden transformation ? Here's a Bihari describing his state after Nitish took over and how things have begun to change.

Things change with time and Bihar is a classic example. All credit goes to CM Nitish Kumar and his incredible IAS officers' team. They continue to do some amazing wonders in governance and governance delivery mechanisms. For the past 5 years, they have shown how dedication and determination can change a lot in the society.

Law and order:

1)First, drastic reduction of kidnapping from 1393 to 397....down to 20% spread over 4 years..
2) 38,824 cases of conviction putting all the major dons like Shahbuddin, Sunil Pandey etc who would come on TV and declare they would murder, kidnap anyone - all are behind bars.
3) No longer gunmen holding guns on the streets of Patna - at day or night...a return of law and order - all due to the Home Secretary Amanalluah (IAS Officer).
4) Today, international banks, private companies are ready to invest and no longer scared of the law and order issues.

Infrastructure:

1) Pratay Amrit - an excellent IAS officer - got 259 bridges constructed in 3 years.
2) 6800 km of roads made - enabling just 4-6 hour from Patna to anywhere in the state.
3) The state's 38 districts have good connecting roads - a miracle indeed - all under R.K. Singh (IAS officer)
4) 1600 major bridges, culverts constructed.
5) W.r.t villages almost 50% is covered and remaining 50% is being covered.

Social and economic front:

1) An IIT was opened, new institutes of fashion technology have come into the scene and classes being conducted.
2) 1 lakh teachers recruited in govt schools where hardly 1 or 2 were teaching and they were scared of the goonda raj during Laloo-Rabri regime.
3) Out-of-school children have dropped from 13.1%(2006) to 3% (2009).
4) out of-school girls rate dropped from 20% to 3%.
5) Banks ready to give loans to people and result 40% increase in automobile sales and most of them who would not buy any vehicles because of extortion and other law and order issues no longer fear because there is a significant change in law and order situation.
6) Malls, private institutes, private enterprises are booming - an 18% increase in cement inflow for construction.
7) 21% construction increase, 16% increase in telecommunications, 12% in trade, hotels etc and 2% in agriculture.

Everything is not perfect..Almost 50% population lies below poverty line. Bihar still is at the bottom in terms of many social parameters including food distribution but I think it is a national problem.

Nitish Kumar also does certain things very differently. Some instances of reports that I came across

1) He is striving for revival of historic Nalanda University by roping in teachers, academicians from across the world to come and prepare syllabus, course content for the future university coming up in Nalanda. He wants to revive the Nalanda magic (no one knows whether it's going to be successful).
2) He went to Rajgir ( a famous historic place ) and conducted his cabinet meeting and asked bureaucrats to make it a tourist spot.
3) He personally enacted a law reserving 50% panchayat seats for women hoping that women would come forward and take part in governance
4) He announced that any volunteers - govt school teachers going into villages will get monetary and other benefits from the govt to increase the literacy rate which is abysmal 47%.
5) He conducting Janata Durbar which has become very famous wherein every Monday people feel safe to come and express their day-to-day problems and this style resembles Naidu, Modi and other CM's who effectively did the same.

Here are some more articles that appeared in 1)Times of India, 2) Another article in TOI.

However, from a non-functional government for 15 years to a visibly functioning government, Bihar has come a long way and it has a long way to go but it is a transition from "no hope" to "complete hope". Let's hope Indian empire's first ever capital Pataliputra (patna) comes back to its golden days again.

I still remember some of my friends from Bihar telling me people flocking in elections not to vote for Laloo's party and vote only for Nitish and see the result - Laloo won just 2 seats of the 42 in 2009 Lok Sabha while had won almost 30 seats in 2004 when Nitish was not into the picture.

So, in short, Bihar's growth was expected due to a humble and hard working Nitish Kumar, but it would be a miracle only if it sustains it.

Here's a further in-depth write up from 2 journalists who travelled through Bihar recently.

Ahmedabad BRTS - A role model and the best so far

Half the road occupied with people just to board the buses.

The picture above is a common sight in Indian cities. Buses, trucks, 2 wheelers, 4 wheelers, 3 wheeler autos, rickshaws - all move in lanes at random and no lane discipline is followed. Perhaps, this was the same problem in Brazil and Columbia and that's when Bus Rapid Transport System (BRTS) was implemented and is today a success story in itself.

What is BRTS?

Bus rapid transit takes part of its name from rapid transit which describes a high-capacity transport system with its own right-of-way, its alignment often being elevated or running in tunnels, and typically running long trains at short headways of a few minutes.

BRTS in India:

When Delhi's CM Sheila Dikshit decided to have BRTS system in Delhi, there was a lot of protest from every corner, yet she went ahead to implement Phase - 1. It was partially successful because it was improperly designed and executed. Phase - II was a disaster. However, the UPA Govt under Manmohan Singh gave green signals to start BRTS in Pune, Ahmedabad, Vishakaptnam, Bangalore and many other cities. Clearly, Ahmedabad is the front runner in terms of achieving an extremely well designed, executed and satisfying BRTS in the country. It was recently awarded the best BRTS system in the country by Dr. Manmohan Singh. It has now been nominated at an International level for effective implementation of public transportation system in any city in the world. Read here for this



Below, are 2 pictures of the effect of the newly introduced BRTS in Ahmedabad. One can see clearly dedicated lanes for public buses without other lanes being disturbed. Other vehicles don't enter this lane and buses don't enter lanes other than ones dedicated to them. Result: Buses can move faster in their lanes and stop or proceed without waiting for any other vehicle.

Gujarat Infrastructure Development Board (GIDB) initiated the plan after Delhi did so and then consulted Center for Environmental Planning and Technology (CEPT) Ahmedabad prepared a feasibility report and due to the efforts of its head Prof. Shivanand Swamy, GIDB and Institute for Transportation and Development Policy (ITDP) - New York together started working and a special purpose vehicle called AHMEDABAD JANMARG LIMITED (AJL) was created under the Central Govt's JNNURM(Jawaharlal Nehru National Urban Renewal Mission) scheme.

Salient features:

Dedicated bus lanes at the center of the road - 2 one for each way. These dedicated lanes move along with the normal traffic (i.e in different lanes) and while taking turns meet each other.



Each bus stop has a separate pavement for people crossing and lanes on either sides for buses to move so that passengers can get down on one side and if needed board another bus on the other side. In this process, they don't CROSS THE ROAD and WILL BE IN THE BUS LANE and move out unless they have to cross road and the road crossings are made suitably (4th and 5th Pic below) so that people can't just cross anywhere they like. This has helped control the traffic movement.


More about the Bus stops:

1) Bus stops have ramps specially to make them disabled friendly


2) Bus Stops have detailed route maps and fare details - BOTH IN ENGLISH AND GUJARATI. I think this is the best part - See pictures below -


Even "You are Here" indications on the map can be seen.

3) There are proper LED displays of the bus stop and the buses that will stop at a particular stop
and the wait time for the next bus. The bus frequency is anywhere between 4 to 8 minutes.

4) At night times, there is proper illumination and everywhere there is proper signage showing Entry, Exit points. At every bus stop the stop name is illuminated at night.


5) Bus stops are simple and elegant in design.

6) Bus stops have Smart Card System that one needs to enter and board the train.



Now, coming to BUSES:

1) Buses run totally on CNG - Environmentally friendly, less pollution.

2) Buses (at least most of them) are Air Conditioned.
3) Buses are fitted with GPS.
4) Requires a SMART CARD to enter the bus


One can also get it at the counter by paying money to an agent if required


5) The floor of the buses co-incide with the floor level of bus stand/stop and is friendly even to disabled.


6) Of course, buses do have LED displays of bus stops and route info.

The complete map which has been implemented (80 km) is as given below, taken from the official site http://www.ahmedabadbrts.com/Transit%20Line%20Diagram.html

By 2011, the entire city will have BRTS stretching for 300 km and will have 90 bus stops.

Further, Surat and Gandhinagar plan to have BRTS by 2011.

When will Bangalore have it? Well, first of all let all existing flyovers and Metro's Phase 1 get completed because as it is the city is facing lot of traffic diversions, jams due to these...

Definitely, Ahmedabad BRTS is the way to go to streamline bus traffic in cities which cause a hell lot of problem for all other vehicles.

Once, The CM Narendra Modi travelled in these buses without guards and assessed if people liked it or not. This was a shock and surprise to all.

Further References:

http://en.wikipedia.org/wiki/Ahmedabad_BRTS
http://timesofindia.indiatimes.com/Cities/You_will_ride_on_your_dream_BRTS_bus/articleshow/3999486.cms
http://www.thehindubusinessline.com/iw/2008/10/05/stories/2008100550771700.htm
http://timesofindia.indiatimes.com/Ahmedabad/BRTS_prototype_makes_a_quiet_entry/articleshow/3928466.cms
http://www.dnaindia.com/india/report_a-brts-bus-for-you-every-4-minutes_1275093
http://timesofindia.indiatimes.com/city/ahmedabad/Amdavadis-can-soon-ride-BRTS-to-Gandhinagar/articleshow/5161842.cms
http://www.blonnet.com/2009/08/03/stories/2009080350750500.htm

IMAGES COURTESY: google, skyscrapercity, janmarg website, times of India