Editorial 1 : Food for a rainy day
Introduction: Too much volatilities in food price is not good for economy. It has adverse effect on both the consumers and the producers. To mitigate this volatilities government should work on some mechanism similar to the RBI’s forex reserve and using this its managing of volatilities in currency market.
How RBI manages volatilities in currency market?
- The Reserve Bank of India (RBI) maintains foreign exchange reserves, now at over $650 billion, not to interfere with the normal functioning of the currency market.
- It seeks, instead, to ensure that exchange rate movements, while market-determined, are “orderly” and there is no “excessive volatility”.
How RBI’s mechanism can be replicated to tame the food prices fluctuation?
- The government must consider building a buffer stock not just of rice and wheat, but even pulses, oilseeds, sugar, skimmed milk powder (SMP) and staple vegetables.
- The idea, again, is not to set prices or supplant the market, but to curb too much volatility that’s neither in consumer nor producer interest and also makes the RBI’s job harder:
- That is a dilemma, when “core” inflation (that is, exclusive of food and fuel) is at a record low of 3.1 per cent (year-on-year for May), but retail food inflation stays elevated at 8.7 per cent.
- Should the central bank cut or raise interest rates? Or leave them unchanged, as in the current uncertain scenario?
Reason for volatilities in food prices
- The increasing volatility and unpredictability of food prices has primarily to do with climate change — fewer rainy days and extended dry spells, interspersed with intense precipitation, and also shorter winters and heat waves.
- The latter’s effects have been felt this time in poor crops of rabi pulses, tomato, potato and even wheat in central India.
- Such supply shocks — whether induced by climate, war or pandemic — typically engender very large price spikes.
- Farmers respond by massively ramping up production that, in turn, leads to steep price declines.
- Let’s take the example of milk.
- Last year, in February-March, dairies were paying farmers Rs 37-38 per litre for cow milk.
- The same dairies have today slashed procurement prices to Rs 26-27 because of SMP realisations crashing to Rs 200-210 per kg, from their February-March 2023 peaks of Rs 315-320.
- These low prices, discouraging dairies from procuring and farmers from feeding their animals properly, could be a precursor to milk shortages and inflation next year.
Benefits of creating buffer stock of essential food items
- Creating a buffer stock of essential food items — procuring from farmers/processors during years of surplus production and offloading the same in times of crop failures — can go some way in evening out such extreme price fluctuations.
- The fiscal cost shouldn’t be much, as the stocked commodities (potato, onion and tomato can even be stored in dehydrated form such as flakes, paste and puree) are to be disposed of during scarcity/inflationary periods at near-market rates.
- The government did undertake such open market sales of wheat and chana from its previously accumulated stocks, which helped moderate cereal and pulses inflation.
- A buffer stocking policy in food items will also do away with the need for regressive anti-farmer measures such as banning exports or imposing stock limits on private traders and processors.
Conclusion: There is a case for creating a buffer stock of essential food items to even out price fluctuation. As the supply side shocks are not in the control of governments or RBI, the buffer stock will help both in controlling volatilities in food prices.
Editorial 2 : Return of reformists
Introduction: In a major surprise, the reformist candidate, Masoud Pezeshkian, won the second round of voting last Friday to become the ninth president of the Islamic Republic of Iran. The elections were held after the previous president Ibrahim Raisi died in a helicopter crash in May.
The electoral pitch of President elect Pezeshkian
- Unlike his predecessor Raisi and his electoral rival Saeed Jalili, both of whom pursued hardline policies at home and abroad, Pezeshkian offers a different path.
- He has promised to make peace with the world, free the internet, and lift social restrictions, especially on women.
- For the people of a country that has been locked in a prolonged conflict with many of its Arab neighbours and the West, and endured endless censorship and repression at home, Pezeshkian could bring a breath of fresh air.
How Pezeshkian ensured his victory over his rival?
- The first round of elections was marked by a small turnout of less than 40 per cent that reflected a growing apathy towards the political process and mounting pessimism about the possibility for positive change.
- Pezeshkian appears to have enthused the urban voters to come back to the polling booths in the second round.
- His rival, Jalili, in contrast, was threatening to double down on social control at home and intensify the confrontation with the world.
- Besides the higher turnout, the squabbles within the conservative camp may have facilitated the victory of Pezeshkian.
The reformist path forward would not be easy of Pezeshkian
- Although he has rekindled hope for much desired change, he knows that the elected president is not the master of the Iran polity.
- That privilege belongs to the “Supreme Leader”, Ayatollah Ali Khamenei, who heads Iran’s “rule by clerics”.
- Pezeshkian served under two liberal presidents — Ayatollah Khatami and Hassan Rouhani.
- Both had promised reform at home and reengagement with the world but could not deliver.
- But politics is the art of the possible and if he is lucky opportunities could open up for Pezeshkian in the days ahead as the ageing Khamenei struggles to manage the multiple crises enveloping Iran.
- Cynics might even argue that Khamenei could give Pezeshkian a longer rope to govern as part of an effort to restore the fading legitimacy of the 1979 Islamic revolution.
Iran at geo-politics: A regional power
- Iran’s geopolitical orientation has a powerful impact on the prospects for peace and stability in the world.
- Iran has the potential to become a swing state in the deepening great power conflict between the US and Europe on the one hand and the Sino-Russian alliance on the other.
- To its west, Tehran is at the heart of multiple conflicts, including the war in Gaza, Lebanon, and Yemen.
- To the north, Iran is a critical factor in the Caucasus, Caspian, and Central Asia.
- Tehran is also a critical player shaping the turbulent frontiers of Afghanistan and Pakistan and the balance between Kabul and Rawalpindi.
Conclusion: The election of Pezeshkian has opened a new opportunity to the world. Delhi, which has cultivated a productive relationship with Iran’s deep state in recent years, must be prepared to seize new possibilities for advancing bilateral ties with Pezeshkian.