Sun, Dec 29, 2013 - Page 14 News List

Food prices: a bricks-and-mortar problem for Indian economy

Faced with rising food prices, the dwindling supply of Indian workers are demanding rapid increases in pay and benefits, threatening government efforts to quell inflation

By Rajesh Kumar Sing and Aditi Shah  /  Reuters, GURGAON, India

Laborers work at the construction site of an educational institute in the western Indian state of Gujarat on Dec. 21.

Photo: Reuters

Three months since journeying more than 1,130km from his village in central India to take a job in this bustling city near the capital, New Delhi, Charan is already looking forward to a 10 percent pay rise. He is not an engineer or programmer. He hauls bricks and sand at a local construction site for less than US$100 a month.

India’s biggest cities face a worsening shortage of migrant manual workers like 26-year-old Charan. While India has long suffered from a dearth of workers with vocational skills like plumbers and electricians, efforts to alleviate poverty in poor, rural areas have helped stifle what was once a flood of cheap, unskilled labor from India’s poorest states.

Struggling to cope with soaring food prices, this dwindling supply of migrant workers are demanding — and increasingly getting — rapid increases in pay and benefits.

If their employer refuses to give them an adequate raise, they are confident they will find better-paying jobs at one of the hundreds of other sites dotted around Gurgaon.

More than pressuring corporate profits, these rapid blue-collar wage increases threaten efforts to quell inflation by Reserve Bank of India Governor Raghuram Rajan, the former IMF economist who took over as governor at the Reserve Bank of India in September. Rajan has made price stability a policy priority, calling it a prerequisite for reviving economic growth that has slipped to 5 percent a year, the lowest in a decade.

Despite little evidence that interest rates can control food prices, Rajan has raised rates twice since taking over to prevent food-price inflation from spilling over into the wider economy.

“India has become a high-cost economy,” said Devendra Kumar Pant, chief economist at India Ratings & Research. “Persistently high inflation is a recipe for disaster.”

Take onions, which figure in almost every Indian meal. Prices for onions shot up 190 percent to US$1.60 a kilogram in the past year, making them more expensive in India than in the US, where incomes are about 35 times higher. That helped push vegetable prices up 95 percent in the past year and pushed India’s headline inflation rate last month to 7.5 percent, a 14-month high.

While vegetable prices are expected to start easing next month following a bumper harvest, subsidized government purchases of grains and rising farming costs mean overall food inflation is not likely to slow down much.

Farming costs are also being driven higher by a government-run, rural employment guarantee program that uses public works projects to provide at least 100 days of guaranteed wage employment each financial year to each rural household with adult members willing to work on irrigation, reforestation, soil conservation and road construction.

Since its rollout in 2006, the program has helped boost livelihoods on poor Indian farms. In the largely rural state of Andhra Pradesh, according to a study, the program has enabled households to boost spending by a tenth, and raise spending on items other than food by almost a quarter.

Rural wage increases have jumped, from 2.7 percent a year before the program to 9.7 percent after its passage. Since 2009, nominal agricultural wages have climbed by more than a fifth a year, with non-farm rural wages up almost 17 percent.

Adding to wage inflation is a pickup in economic activity and job creation in laggard states of central and eastern India, which used to be the main source of migrant labor.

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