The Government has been closely monitoring the inflation situation with a view to protecting the common citizen against abnormal price rise. Our experience in the recent past has been that while prices of most manufactured goods and services have been reasonably stable, food prices have frequently risen at unacceptable rates.

2. A year ago, the primary concern was with foodgrain prices which were pushed up because of the drought of 2009-10. We were able to bring foodgrain prices under control thanks to additional release through the PDS and a strong effort to increase production. The current bout of inflation is driven by a rise in prices of vegetables and fruits which is more difficult to manage because these commodities are not held in public stocks. The rise in prices is partly due to late rains, which affected the onion crop. There is also an underlying increase in prices of milk, eggs, meat and fish, which is the result of fast growth of the economy, leading to rising income levels, combined with the effect of several inclusiveness programme which put greater income in the hands of the relatively poor whose food consumption increases.

3. The only lasting solution to food price inflation lies in increasing agricultural productivity. Government has taken up important new schemes, and provided large budgetary support to these, with a view to boosting agricultural production not merely in cereals but also in pulses, oilseeds, vegetables and fruits, milk and milk products, and poultry etc. As incomes rise, demand shifts towards horticultural crops, dairy products. These are perishable and need sustained development of market facilities, cold storage etc, quite different from what is needed for foodgrain.

4. The Government has recently reviewed the position and is taking the following measures to moderate these price increases:

(i) NAFED and NCCF shall undertake sale of onions at Rs 35/kg from their retail outlets in various locations, with suitable budgetary support to be provided for this purpose. The arrival of onions from Pakistan will also help cool prices. Import of 1000 tonnes of onion has already been contracted. Export of onions stands banned.

(ii) Government will review import and export of all essential commodities on a regular basis and impose controls on exports and ease restrictions on imports, including tariff reduction where necessary, to improve domestic supplies.

(iii) Public Sector Undertakings shall intensify purchases of essential commodities, particularly edible oils and pulses, for distribution through their retail network and also through the Public Distribution System operated by the State Governments. The existing schemes for subsidized distribution of edible oils and pulses will be continued. Exports of edible oils and pulses, as well as non-basmati rice, will remain banned.

(iv) Government will take stringent action against hoarders and black marketers manipulating market prices, under the relevant legal provisions, so as to ensure that products reach the markets in a timely manner to moderate the prices. Cartelisation by large traders will be strictly dealt with. The States will be requested to ensure that such action is effectively taken under the Essential Commodities Act, 1955, and the Competition Act, 2002.

(v) Awareness campaigns will be intensified bringing out the availability of alternatives at cheaper rates such as yellow peas with a view to influence consumption pattern in favour of such alternatives. Special initiatives will be taken to involve Residents' Welfare Associations and Self-Help Groups in distribution of essential commodities to address local shortages and ensure that the supplies reach the households with least intermediation cost.

5. Other measures involving a somewhat larger horizon include the following:

(i) A scheme to support the state governments in the setting up of farmers' mandis and mobile bazaars and to improve the functioning of civil supplies corporations and cooperatives will be finalised urgently.

(ii) The existing Public Distribution System will be suitably strengthened through computerization and other steps, including opening more procurement windows across the country.

(iii) State Governments would be urged to review the Agricultural Produce Market Committee (APMC) Acts and, in particular, consider exempting horticultural products from its purview thereby mitigating marketing and distribution bottlenecks in this crucial sector. State Governments will also be urged to consider waiving mandi tax, octroi and other local levies which impede smooth movement of essential commodities, as well as to reduce commission agent charges.

(iv) Investment will be encouraged in supply chains, including provisions for cold storages, which will be dovetailed with organized retail chains for quicker and more efficient distribution of farm products and minimizing wastage. Department of Industrial Policy & Promotion, Department of Food & Public Distribution and Ministry of Food Processing Industries and the Planning Commission will jointly work out schemes for this purpose.

(v) Suitable support will be extended to facilitate stocking of the bumper Kharif 2010 crop, including by augmenting storage capacities and modernizing/ upgrading the godowns and other infrastructure.

6. An Inter-Ministerial Group (IMG) has been set up under the Chief Economic Adviser, Ministry of Finance to review the overall inflation situation, with particular reference to primary food articles. The IMG will, inter alia, review production/ rainfall trends and build an institutional machinery to read warning signals, assess international trends, recommend action on fiscal, monetary, production, marketing, distribution and infrastructure fronts to prevent price spikes, and suggest measures to strengthen collection and analysis of data and forecasting.

7. The Committee of Secretaries under the Cabinet Secretary will review the prices situation with individual States, and advise the Departments concerned of the Central Government to maintain close coordination with State agencies to get direct feedback with a view to taking suitable remedial measures on a fast-track.

8. The Government is watching the situation closely and is committed to containing the adverse impact of any inflationary pressures on the common man.