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Friday, February 19, 2010
1:03:00 PM | 
Posted by
Sukh Sandhu
Galloping food prices have shattered family budgets across the country, with latest inflation data showing that prices rose at nearly 18% in the week ending February 6. Many essentials of Indian kitchens are almost beyond reach; sugar is up by nearly 60%, pulses by 46% and potatoes by 53% over a year. In a country already suffering from chronic malnutrition and low incomes, this trend is a killer.
President Pratibha Patil in her speech to the Parliament last year had promised to provide at least 25 kilograms of rice/wheat at Rs 3 per kg to all families below the poverty line (BPL). Finance minister Pranab Mukherjee had confirmed this in his Budget speech. The National Food Security Bill, introduced in Parliament last year, includes this provision. Yet, the government appears to be dragging its feet on this vital policy issue.
Centre for Budget and Governance Accountability (CBGA) points out that if food security is to be really achieved, restricting the provision of subsidized grain to the BPL category is unlikely to do the trick. What would dramatically improve availability of food grains and bring down their prices is channelling cheap foodgrains through a universal public distribution system.
Contrary to fears, the cost of providing subsidized food grains to all Indians is not prohibitive, according to analysis done by the CBGA, even if the amount of grain provided per family per month is raised to 35kg, the amount now given to BPL families under the targeted PDS. They show that additional expenditure of just Rs 84,399 crore is needed for this. This is less than a fifth of the revenue foregone by the government through tax exemptions in 2008-9, which stood at a whopping Rs 418,096 crore.
The total food subsidy currently provided by the government is less than 1% of the country’s gross domestic product (GDP), and about 3% of the total expenditure incurred by the central and state governments together, according to data compiled by CBGA. It has hovered around this mark for nearly two decades. In 2009-10, the food subsidy given by central government was Rs 52,490 crore. This amount is transferred to the Food Corporation of India (FCI) to compensate the difference between the cost FCI incurs in buying from farmers, storing and transporting and the lower prices at which it sells to public distribution system.
If food grain were to be sold at Rs 3 per kg to the estimated 24 crore households in India, the government would have to shell out Rs 136,829 crore, CBGA calculates. This is based on the assumption that procurement, storage and distribution will cost about Rs 18 per kg for rice and about Rs 14 per kg for wheat. Deducting the current food subsidy of Rs 52,490 from this gives an estimate of Rs 84,399 as additional expenditure. The amount of subsidy will get increased to Rs 94,419 crore if grain is sold at Rs 2 per kg.
This expenditure is justified, says CBGA, because over 50% of children in India are underweight and nearly 75% of women are anaemic, as per the third National Family and Health Survey. Despite record harvests every year, the amount of cereals and pulses available per person has been steadily declining from 186kg per annum in 1991 to 166kg in 2000 and further down to 160kg per annum in 2007.
Whether government has the political will to tackle hunger in the country will become clear next week when the annual Budget is presented to Parliament.
The Times of India Report. Click Here
President Pratibha Patil in her speech to the Parliament last year had promised to provide at least 25 kilograms of rice/wheat at Rs 3 per kg to all families below the poverty line (BPL). Finance minister Pranab Mukherjee had confirmed this in his Budget speech. The National Food Security Bill, introduced in Parliament last year, includes this provision. Yet, the government appears to be dragging its feet on this vital policy issue.
Centre for Budget and Governance Accountability (CBGA) points out that if food security is to be really achieved, restricting the provision of subsidized grain to the BPL category is unlikely to do the trick. What would dramatically improve availability of food grains and bring down their prices is channelling cheap foodgrains through a universal public distribution system.
Contrary to fears, the cost of providing subsidized food grains to all Indians is not prohibitive, according to analysis done by the CBGA, even if the amount of grain provided per family per month is raised to 35kg, the amount now given to BPL families under the targeted PDS. They show that additional expenditure of just Rs 84,399 crore is needed for this. This is less than a fifth of the revenue foregone by the government through tax exemptions in 2008-9, which stood at a whopping Rs 418,096 crore.
The total food subsidy currently provided by the government is less than 1% of the country’s gross domestic product (GDP), and about 3% of the total expenditure incurred by the central and state governments together, according to data compiled by CBGA. It has hovered around this mark for nearly two decades. In 2009-10, the food subsidy given by central government was Rs 52,490 crore. This amount is transferred to the Food Corporation of India (FCI) to compensate the difference between the cost FCI incurs in buying from farmers, storing and transporting and the lower prices at which it sells to public distribution system.
If food grain were to be sold at Rs 3 per kg to the estimated 24 crore households in India, the government would have to shell out Rs 136,829 crore, CBGA calculates. This is based on the assumption that procurement, storage and distribution will cost about Rs 18 per kg for rice and about Rs 14 per kg for wheat. Deducting the current food subsidy of Rs 52,490 from this gives an estimate of Rs 84,399 as additional expenditure. The amount of subsidy will get increased to Rs 94,419 crore if grain is sold at Rs 2 per kg.
This expenditure is justified, says CBGA, because over 50% of children in India are underweight and nearly 75% of women are anaemic, as per the third National Family and Health Survey. Despite record harvests every year, the amount of cereals and pulses available per person has been steadily declining from 186kg per annum in 1991 to 166kg in 2000 and further down to 160kg per annum in 2007.
Whether government has the political will to tackle hunger in the country will become clear next week when the annual Budget is presented to Parliament.
The Times of India Report. Click Here
SHENZHEN, China (Reuters) - In the hard, exhaust-choked reality of his days trawling Longhua's clogged roads, taxi driver Zhang Bo's ambition to buy a small flat for his young family has slipped out of reach for now.
Like many Chinese who covet real estate as a symbol of stability and social stature, Zhang is dismayed at the alarming climb of apartment prices in his adopted city of Shenzhen in southern China.
"People can't afford new flats anymore," said Zhang, 28, who drives a taxi to make ends meet after his small electronics factory went belly-up during the financial downturn last year.
"It's a very distant goal for us. Something we can only dream about," said the spiky-haired native of Hubei province, who takes home around 6,000 yuan ($880) in cab fares a month. He likes to joke that he now has to work three months just to buy one square meter (three feet) of residential space in the city's suburbs.
As one of millions of workers gravitating to China's major cities in search of work and opportunity, Zhang's plight mirrors the dilemma faced by many Chinese who are beneficiaries of the country's economic rise, but who are nevertheless finding it increasingly difficult to own a roof over their heads.
"The affordability is deteriorating because of the rapidly rising prices and increasing mortgages for home buyers, particularly for investors," said Xavier Wong, head of research for greater China at property consultant Knight Frank.
In January, property prices in 70 cities across China rose 9.5 percent from a year earlier. The eighth consecutive year-on-year rise added to worries of a real estate bubble.
Stephen Green, a China economist at Standard Chartered noted in a report in early February that at least seven cities saw land prices triple in 2009.
"This is clearly bubble territory for the land markets in many cities," he wrote.
HOT BUTTON ISSUE
The property bubble has become a hot social topic, spawning TV shows, Internet chatter, books and buzzwords such as "house slaves," while the growing ranks of hard-up Chinese couples opting to marry without a home, car and other traditional middle class trappings are now dubbed "naked marriages."
A popular TV drama called "Dwelling Narrowness," depicting the tribulations of a family in a city modeled on Shanghai struggling to buy their own apartment, was yanked from the airwaves in some places, hinting at government sensitivities toward the subject matter.
The migration of grassroots families and graduates in major cities to cheap, rented digs on urban fringes, could pose a socio-economic challenge for the government as the middle class malaise could fuel protests and threaten Communist Party rule.
Risks of an asset bubble forming have prompted Beijing to tighten monetary policies to help cap price rises in land and residential markets, with major developers, such as China Vanke watching future policies closely.
For the second time this year, China last week raised the level of reserves banks must hold in a move that could dent demand for risky assets.
Analysts said the government could deploy other tools as well, such as mortgage rates, lifting downpayments of second homes and slapping a property tax to cool the sector.
The measures appear to be working, with sales of new and existing homes down across the country in January, leading to dampened sentiment and a slide in prices in some cities.
Analysts say, however, that the government may not be able to rein in the property sector too aggressively since it is a main pillar of the economy with its investments accounting for over 10 percent of gross domestic product.
"The central government is trying to get the price down for a short period of time. They're squeezing out the people with money to allow the middle class to be able to afford (property) again," said Andy Xie, an independent China economist.
"(But) the local developers who have liquidity know the game. They'll be asking why should I discount now and sell to poor people when I know the government will come around and open this up again so that they can sell to rich people again.
"It's very much a political economy thing," he said.
Unlike places like Hong Kong or Singapore, which provide ample cheap public housing for its citizens, most cities in China lack such municipal infrastructure.
Analysts said a common way of calculating affordability of housing was to measure the percentage of monthly household income needed to pay up mortgage instalments and anywhere between 30 to 40 percent was deemed reasonable in Asia.
"You will find that the ratio (in China) is very, very high. (It's) very unaffordable because a lot of cities -- we're talking about 60 percent to 70 percent of their monthly household income -- needs to be used for monthly mortgages," said Wee Liat Lee, an analyst at Nomura International.
"But the problem with this measure is that you forget the fact that income is extremely skewed in China," he said, referring to the ability of many home buyers to pay for their apartments due to the one-child policy, with parents and grandparents pooling their savings to fund the purchases of the only children who are now old enough to own homes.
Overall, analysts say housing prices may rise further, though at a more modest pace than last year as the government is pushing for more affordable housing to hit the market later this year.
The scope of such housing, however, is likely to remain modest, given the great dependence of public coffers on a flood of property-related income to bankroll government spending and debts from last year's massive economic stimulus package.
Due to a lack of other investment options and as real bank deposit rates turn negative, more of China's accumulated wealth and savings are likely to pour into real estate in many top cities, potentially exacerbating inflation and home prices for the grassroots.
"The property market is a little unsteady at the moment," said Zhou Shaoying, a businesswoman who owns two homes in Shenzhen including an apartment in a complex which has an Olympic-sized swimming pool, tennis courts and even a ferris wheel.
"But if we have any surplus money, we'll invest it in another flat," added Zhou, who runs a printed circuit board factory with her husband in Songgang, a gritty town in Shenzhen's western suburbs. "We'll wait till after the lunar new year ... After that I think the market will rise again in the long term for sure."
(Additional reporting by Yang Fei in Hong Kong; Editing by Megan Goldin)
Reuters
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