Food price inflation is one of the most talked about issues in the country today. The brunt of the same is being felt across India and across all sections of society. India’s food inflation accelerated to nearly 17 percent in mid May 2010 though there has been a decline to about 12-13 per cent in the last few weeks. It is interesting to note that the farmer or the grower has not benefited from this rise in food prices as there exist huge imperfections in the market. Demand-supply mismatches and inefficient supply mechanisms result in large price spreads between the growers and final consumers.

There is no denying the fact that high food inflation in the country is also being driven by the food scarcity caused by the low production of foodgrain during 2008-09 and 2009-10. As a matter of fact, India suffered one of the worst droughts in 2009 since 1972. However, in addition to low production and productivity, the prevailing market inefficiencies – lack of coordinated efforts in public procurement, poor distribution, wastage due to inadequate and poor storage facilities, inefficient public distribution system, speculative trading - all have been crucial in allowing food prices to rise sharply.

The complex causes of the current food and agriculture crisis require a comprehensive response. CII believes that in the existing situation the Government should take some strong measures to ease the food price pressure as well as benefit the smallest stake holder in the agriculture sector.

In view of the urgency of the situation, the first set of policy actions—an emergency package—consists of steps that can yield immediate impact:

• India has comfortable levels of food grain stocks. The release of these stocks together with faster distribution can help contain rise in price of food grains.
• State government should take effective action against hoarders and black marketers
• India having comfortable Foreign Exchange Reserves, a part of it can be used for bulk import of essential commodities like pulses, fruits and vegetables etc.

The second set of actions consists of the following steps for the medium to long term. Since the late 1990s, the government of India (GoI) has implemented a vast array of policy reforms to improve the environment for rural investments, more effective market operations and the development of more efficient supply chains. However, a large domestic reform agenda remains to be completed. Some reform options and their implications are elaborated below:

• Improving food production and productivity: Although the yield per hectare of food grains has shown some improvement in the recent years it is not significant enough to cater to the needs of the rising population particularly when income levels are also rising. Since farm productivity is not showing desirable growth there is urgent need to focus on research as well as better agricultural practices to ensure that productivity levels are increased in the shortest possible time. Special attention should be given to the states with relatively low productivity.
• Though the country has been able to build up strategic reserves of wheat and rice in the last few years the issue of storage, efficient food stock management, and offloading of stocks in time needs urgent attention.
• The government should revamp the MSP policy and make it more market oriented.
• Promoting Private sector Participation in Foodgrain Management: Complementary changes to the food pricing policies are required to ensure that the above enabling changes do result in greater private sector participation. Private marketing should be strengthened through reforming the Agricultural Produce Marketing Committees (APMC) Act, abolishing the Essential Commodities Act (ECA), abolishing rice levies, permitting direct purchases from farmers, eliminating movement and storage controls, facilitating warehouse receipts, strengthening futures markets, and opening imports and exports to the private sector.
• Pulses should be a part of the buffer stock maintained by Government as is the case of Rice and Wheat. Need for a “New Green Revolution in Pulses and Oilseeds” in the way it was done for Rice and Wheat.
• Taking Policy initiatives to enhance food grain availability by broadening the base of procurement. Tap the potential of water abundant areas in North East which possess highly favorable agro–ecological conditions and a comparative advantage in foodgrain production to meet the food security issues.
• Improving the overall investment climate for Promoting agribusiness, agro-industry and overall rural non-farm sector growth. In the long term, measures to improve the functioning of markets (for example, investments in rural infrastructure) and value-addition (such as agro-processing, cold chains) could offer more efficient and cost-effective methods of relieving seasonal gluts.
• Stepping up investments:  In the long run, India will have to invest more in agriculture to be able to meet the objective of food security of a growing population. Subsidies if needed should be channeled directly to the targeted groups in the form of coupons or smart cards.
• Creating an enabling environment for PPP: Considering the large investment requirements, the private sector participation is crucial for creating the necessary marketing infrastructure. Private investment/public private partnership requires policy support from the Government both in terms of creating legal environment, stable policy perspective and financial incentives.
• Reformulating tenancy legislations to encourage advanced commercialization of agriculture.  In view of the past experience in implementation of tenancy legislation and the prevailing socio-economic realities in the countryside, there is a strong case to legalize tenancy and allow leasing in and leasing out land with adequate safeguards to protect the interest of small and marginal farmers. Liberalization of agricultural tenancy would promote diversified agricultural growth, better utilization of land and increase farm output, increase the mobility of people from the rural to urban areas and improve the availability of land in the land lease market. The legalisation of tenancy is expected to give rise to long-term tenancy contracts, which would offer more incentives to the tenants for undertaking productivity enhancement measures.
• To encourage vertical coordination between farms, firms and supermarkets, marketing and trade policies should be liberalized. A suitable model related to FDI in retail needs to be developed in Indian context. Foreign Direct Investment (FDI) in food retailing with due safe guards of protecting the existing retail corner stores/employees of these stores should be encouraged by allowing phased entry of foreign direct investment (FDI) in food retailing.

These measures outlined above will help to curb the spiraling food prices in the short run and will set the grounds for tackling such challenges and achieve the Indian government’s growth targets in the long run. The above measures are a sort of integrated package and need to be implemented together so that dividends of such a package can be harnessed to the full in terms of better and targeted food security at a much lower cost. The resources so saved can be ploughed back to agriculture through investments in research and rural infrastructure, which give much higher returns.