Soaring Food, Fuel Prices Challenge Modi Govt Before Budget

TIR, 17 June 2014: After crude prices hit a nine-month high, the rising food prices are emerging as another big challenge for the Narendra Modi government within a month of assuming office.
The new government, which registered a massive victory last month on the promise that it will contain stubbornly high inflation, has been hit by plagued economic data.
Crude prices soared last week as a result of Iraq crisis pressuring the rupee.
Now the elevated costs for vegetables and fruits have accelerated the inflationary pressures. Rising potato and onion prices have tossed up the food inflation to 9.50 per cent in the month of May as against 8.64 per cent in April.
While potato prices soared 19 per cent in May, Nashik strike has blown up the onion prices. Nashik is one of the biggest onion markets in the country. Maharashtra and Karnataka are responsible for 45 per cent of the onion produce and if the supplies from these two key states are hit, onion prices will automatically rise.The government’s first budget is likely to be delivered in the second week of July and Finance Minister Arun Jaitley has blamed ‘speculative hoarding’ for the rise in food prices.
As per analysts, the problem may be more profound keeping in mind the predictions by the weather department. Below average rainfall has been predicted between June-September this year. This will affect the summer crops such as rice, soybean, cotton and corn, aggravating price pressures and impacting economy.
55 per cent of the country’s farmlands lack irrigation facilities and depend on summer monsoon rains.
Describing the acceleration in wholesale prices as ‘very shocking’, Economist Upasna Bhardwaj of ING Vysya Bank said that thought it is a broad-based uptick, food prices have increased sharply.
Adding to the dwindling fiscal balance, the government’s subsidy bill is also likely to rise.
However, Prime Minister Modi had said that he will bring in ‘bitter medicine’ to revive the dying economy.
According to analysts, the government will cut expenditure, especially subsidies, and keep its focus on fiscal consolidation.