x Abu Dhabi, UAEWednesday 17 January 2018

India's food price hikes are a sign of deeper woes

Costly onions in India are a reminder that New Delhi desperately needs to put politics aside and offer a plan to get the country's economy back on track.

Rising food prices and food shortages are cause for concern in many countries around the world, and nowhere are these concerns more real today than in India. According to the UN's Food and Agriculture Organisation, over 18 per cent of Indians are undernourished. The country suffers from high rates of unemployment, poverty, rampant corruption, sluggish bureaucracy and a large rural population.

But in India's case, the rise of food prices is closely tied to the inability of the government to respond to worrying economic trends. The latest indicator of this is the price of onions - a basic and essential ingredient in India's cuisines - which has more than doubled in the past three months. Water shortages have played a role, but so too have inflationary pressures and declining investor confidence, dual challenges that have sent the value of the rupee plummeting.

Food price hikes are not entirely of the government's making, but mounting deficits and a woefully mismanaged economy are all adding to India's current troubles - at the till and in the markets. Data provided by the country's central bank this week underscore these concerns: projected economic growth of 5.7 to 5.9 per cent this fiscal year, the slowest rate since 2002. The projection, which has been based on extrapolation and did not take into account growth since December, may be revised upwards if the government initiates measures for the next fiscal year to restore confidence in the market and improve budget spending.

Confidence has been in short supply for too long. Political deadlock has stalled needed reforms. Meanwhile, the country is gearing up for a general election in 2014, and so the political appetite for drastic, unpopular measures will be scant. The more likely possibility is more ill-advised and costly entitlements that only add to India's deficit.

Desperate times in India require bold moves, including tax reforms and a serious campaign to combat corruption. If the government continues to delay necessary structural reform, the malaise will linger further.

India needs to invest in infrastructure to better move crops to market. Over time, it also needs an investment strategy to get Indians working. That will take years, and require a shift from agrarian-based employment to manufacturing and industry in urban areas.

What it needs most immediately is confidence. The best way to build it is for the government to put politics aside and offer reassurances that it has a plan to put India's economy back on track.