Agflation helps poor, says study

By OUR CORRESPONDENT

Chennai

Aug. 24: Studies conducted by economists at the Carnegie Endowment for International Peace (CEIP) have deduced that rising global food prices can actually help improve the conditions of the majority of the poor and alleviate poverty in the country.

Ms Sandra Polaski, senior associate and director at the CEIP pointed out that analysis of data collected through surveys by the Indian government of over 2.5 lakh poor families had shown striking correlation between increasing global food prices and improved conditions of the poor, especially the rural poor.

The general equilibrium model used by CEIP to simulate the impact of different prices by using the data available through government surveys showed that a 50 per cent increase in rice prices was found to increase the real income of the poorest 30 per cent of the rural population from four to seven per cent.

The poorest 30 per cent in the cities too were found to be benefited, though to a lesser extent by a price increase in paddy.

"The poorest 30 per cent of the population which comprises mainly of SC, ST and OBCs benefits the most by any rise in the price of India’s largest crop – rice. The rural population gets a direct benefit in the form of increased returns and increased daily wages," said Ms Polaski.

Any reduction in the prices of paddy on the other hand were found to severely impact the incomes of this poorest 30 per cent.

A forthcoming World Bank report by Mr M. Ataman Aksoy and Mr Aylin Isik Dikmelik too has pointed out that the net food sellers in low-income countries are poorer than the net buyers.

This report suggests that rising food prices would tend to transfer income from the richer to the poorer households, while a lowering of prices would do the opposite.

However, a similar analysis on increase in price of wheat, was found to have a negative impact on the urban poor. While the rural poor benefited by the increase, the benefits were found not to trickle down to the urban poor.

"One must remember that 70 per cent of the country’s population resides in the rural areas. A hike in food prices will eventually help in alleviating poverty and improve the condition of the poor over the next three to five years," said Ms Polaski.

Indian economists, however, have expressed concerns that any increase in prices would benefit only the net producers and not the net consumers among the poor.

Mr Ashok Gulati, Asia director, International Food Policy Research Institute said that it is necessary for the government to differentiate between prices for consumers and producers. "While the producers at the bottom of the pyramid should benefit from an increase in global food prices, the poor consumers should be protected," he said.

Mr Gulati added that it was time for India to move from reliance on public distribution systems (PDS) to employment guarantee schemes (EGS) and distribution of coupons for the poor.