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O 291430Z JAN 10
FM AMEMBASSY NEW DELHI
TO RUEHC/SECSTATE WASHDC IMMEDIATE 9333
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INFO RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE

UNCLAS SECTION 01 OF 04 NEW DELHI 000188 
 
STATE FOR SCA/INSB, EEB/TPP/MTAA/ABT, C-CHUANG 
USDOC FOR ITA/MAC DAS HVINEYARD 
USDOC FOR 4530/ITA/MAC/OSA/LDROKER/ASTERN 
USDA PASS U/S MILLER AND FAS/OCRA/RADLER/BEAN/FERUS 
DEPT PASS TO USTR FOR SOUTH ASIA - MDELANEY/CLILIENFELD/AADLER 
DEPT PASS TO TREASURY FOR OFFICE OF SOUTH ASIA - MNUGENT/WFOSTER 
TREASURY PASS TO FRB SAN FRANCISCO/TERESA CURRAN 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EAGR ECON EAID EFIN ECIN EINV SENV PGOV IN
SUBJECT: THE BLAME GAME: AG MINISTER ON DEFENSE OVER HIGH FOOD 
PRICES 
 
REF: A. MUMBAI 00130 
  ¶B. NEW DELHI 02482 
  ¶C. NEW DELHI 02515 
 
¶1. (SBU) Summary: The national concern about continuing high food 
prices has grown increasingly political as the allied Congress Party 
has joined the opposition in criticizing Nationalist Congress Party 
(NCP) chief and Minister of Agriculture Sharad Pawar for failing to 
stem rising food inflation.  The Bharatiya Janata Party (BJP) and 
other opposition parties have seized upon Minister Pawar's remarks 
about a potential rise in milk prices, focusing criticism on the 
central government's lack of coordination and failure to reduce the 
misery of the "common man" with respect to high food prices. 
Although the GOI has taken some measures to curb food prices, it has 
not yet introduced significant structural or policy reforms that 
would reduce supply constraints or improve agricultural 
productivity.  Bogged down with rhetorical battles, maintaining 
extraordinary barriers to food imports (except for essential 
commodities) and unable to motivate states to improve agricultural 
productivity, the GOI continues to struggle to contain domestic food 
price inflation.  End Summary. 
 
Crying Over Spilled Milk 
------------------------- 
 
¶2. (SBU) On January 20, Minister of Agriculture Sharad Pawar, added 
fuel to the already heated discussion centered around the United 
Progressive Alliance (UPA) government's management of rising food 
prices.  In a speech to a conference of state ministers of dairy and 
animal husbandry, the minister suggested that a shortage of milk may 
cause a supply-demand mismatch, resulting in a rise in milk prices 
in the "near future."  Pawar's remarks triggered a new round of 
criticisms from opposition parties regarding his mismanagement of 
high food inflation.  Uttar Pradesh Chief Minister Mayawati called 
for the Prime Minister to fire Pawar for the "irresponsible remark." 
 During a meeting with Prime Minister Singh, BJP leaders accused the 
central government of adopting a "do nothing" approach to food price 
inflation.  Although Pawar later dismissed the suggestion that he 
was in favor of rising milk prices, his comments had already 
provoked opponents. 
 
Congress Distances Itself 
------------------------- 
 
¶3. (SBU) As political opponents denounce Pawar, the Congress Party 
has quietly distanced itself from the NCP leader. (Note: The NCP is 
a faction of the Congress Party that formally split from Congress in 
1999, when several politicians, including Pawar, disputed Sonia 
Gandhi's claim to the Prime Ministership of the country due to her 
foreign origin.  Relations between the Congress Party and the NCP 
have always been a bit testy due to their competition for control of 
the state of Maharashtra.  Although the NCP considers itself to be a 
moderate and centrist national party, its political base is largely 
confined to Maharastra.  See Reftel A for more background.  End 
Note.)  Spokespersons for the Congress Party have reminded the media 
that "there is a coalition government... It is not a Congress 
government," drawing distinctions between their party and the 
Agriculture Minister.  Congress spokesperson Abhishek Singhvi told 
reporters that those responsible for presenting "the problem" would 
also have to come up with a "solution."  On January 25, some members 
of the Congress Party went a step further, requesting that Minister 
Pawar's twin ministerial portfolio, which includes the Ministry of 
Agriculture and the Ministry of Consumer Affairs, Food & Public 
Distribution, be split as it brings about a conflict of interest 
between producers and consumers.  A Congress Working Committee 
meeting will be held in February to provide an opportunity for party 
leaders to discuss the issue. 
 
Pawar Points Finger 
-------------------- 
 
¶4. (SBU) In response to sharp criticism for rising food prices, 
Minister Pawar deflected blame, noting that he is "not the only 
person involved in this process (of setting prices)."  He reminded 
reporters that the Prime Minister and Cabinet decide price policy, 
and that decisions on commodity prices are a collective 
responsibility.  On January 25, Pawar clarified that he had not 
meant to criticize the Prime Minister.  The BJP had already seized 
on the hint of division, drawing attention to Pawar's "shifting the 
 
NEW DELHI 00000188  002 OF 004 
 
 
blame" for the rising prices to the Prime Minister and the Cabinet. 
The BJP called on the Prime Minister and Congress Party President 
Sonia Gandhi to provide an explanation for food price inflation. 
 
¶5. (SBU) Throughout the debate on food prices, both the Congress 
Party and Pawar have urged state governments to crack down on black 
marketers and hoarders.  Pawar lambasted state governments for not 
doing enough to boost productivity, stating "I cannot understand why 
states are not taking funds for dairy development.  There are funds 
lying idle." 
 
The Cabinet Moves to Curb Food Prices 
-------------------------------------- 
 
¶6. (SBU) Amid the finger-wagging, the Cabinet Committee on Prices 
(CCP), the central government body designated to address food 
prices, approved several measures in mid-January aimed to contain 
food inflation.  The committee approved the release of three million 
tons of stockpiled wheat into the open market throughout February 
and March, before the new marketing season begins (the rabi or 
winter crop is expected at the end of March), which the GOI hopes 
will lower prices and clear space for the new crops arriving.  An 
additional 700,000 tons of wheat and rice are to be distributed 
through government marketing institutions, such as the National 
Agricultural Cooperative Marketing Federation of India Ltd and the 
National Cooperative Consumers' Federation of India Ltd, a 
federation of consumer cooperatives.  While these measures will 
raise the amount of wheat and rice in the open market, the GOI 
continues to sit on record stocks of both wheat and rice, well above 
the usual government buffer stocks.  The CCP also pushed for state 
governments to check hoarding and conduct more raids on black 
marketers under the Essential Commodities Act. 
 
¶7. (SBU) To lower sugar prices, the committee extended the zero duty 
on sugar imports through the end of December 2010, and allowed 
millers in Uttar Pradesh (UP) to process imported raw sugar in other 
states (the UP government banned the entry of imported sugar into 
the state through March in response to farmers' protests over cane 
pricing).  At a meeting with sugar industry representatives on 
January 27, the Prime Minister endorsed a CCP proposal to allow 
refineries and mills importing sugar to sell their imports and 
contract processing with other mills.  The provision, directed at UP 
sugar millers, supposedly will allow for faster processing of sugar 
to fill the gap between supply and demand.  (Note: Pawar's power 
base in Maharastra is almost exclusively among sugar barons of 
western Maharashtra, where most of the country's sugar cane is 
grown.  Therefore his supporters would have strongly resisted any 
changes in sugar policies, especially imports, as that would have 
eliminated their windfall profits.  Pawar resisted changes in policy 
for several months, but ultimately was forced to capitulate.  See 
Reftel A for more background.  End Note.) 
 
The Truth about Milk and Sugar 
------------------------------ 
 
¶8. (SBU) Beyond the political maelstrom created by Pawar's comments, 
there is genuine concern that India will face a shortage of milk 
products due to rising demand.  According to figures released by the 
National Sample Survey, Indian consumption patterns are changing to 
incorporate more high-value foods, including eggs, fish, and meat 
and milk products.  Coupled with an increase in export 
opportunities, demand for milk products is reportedly outpacing 
increases in production.   Another industry source, the Dairy India 
2007 report, claims the sector is growing by less than three percent 
annually, while consumption continues to rise.  Overall, even as 
Indian milk output is rising, demand for milk products is increasing 
even faster due to changing food patterns within India's growing 
middle class.  Milk prices have already risen 13 percent since March 
2009, as measured by the Wholesale Price Index (WPI).  The likely 
result of the supply demand mismatch is an additional increase in 
the price of milk and milk products.  (Comment: State intervention 
in the dairy sector via state-run cooperatives is strong in setting 
prices, weakening demand signals that would prompt farmers to 
increase productivity.  End Comment.)  The case of sugar is similar: 
demand, which is expected to be 23 million tons, exceeds expected 
domestic supply by about seven million tons.  The Ministry of 
Agriculture estimated that 5.6 million tons of sugar were contracted 
for import; however, concerns remain that the imports will not 
augment supply enough to meet high demand. 
 
NEW DELHI 00000188  003 OF 004 
 
 
 
Food Price Impact on Wholesale Price 
Inflation and GDP Growth 
-------------------------------------- 
 
¶9. (SBU) Aside from the political debate, food prices have had a 
considerable impact on overall inflation.  With food prices 
remaining high, the wholesale price inflation stood at 7.31 percent 
for December 2009, exceeding the Reserve Bank of India's target of 
6.5 percent for the fiscal year.  Food inflation stood at 17.4 
percent for the week ending January 16 since reaching an 11-year 
record high in December at 19.83 percent (Reftels B and C).  Chief 
Statistician and Secretary at the Ministry of Statistics Pronab Sen 
estimates that wholesale price inflation for the fiscal year (ending 
March 31) will likely hit nine percent, barring any dramatic 
reduction in agricultural prices.  Sen also estimates that 
projections higher than seven percent for 2009-10 GDP are incorrect 
and that farm production may dip by six to seven percent in the 
third quarter due to the sporadic monsoon.  The lower agricultural 
output in the third quarter will bring, according to Sen, GDP growth 
figures between 6 and 6.5 percent for the third quarter, keeping 
annual GDP growth below seven percent. 
 
President Patil Links Food Prices with 
Need for "Second Green Revolution" 
--------------------------------------------- ---- 
 
¶10. (SBU) In her Republic Day address, President Patil called for 
"urgent steps towards a Second Green Revolution."  Her address 
focused on the need to increase and improve agricultural 
productivity and linked the rise of global demand for grains with 
rising prices at home.  Patil advocated for increased farm 
productivity through a second Green Revolution and suggested that 
the time had come to think "out of the box" to lower prices.  Patil 
urged India to explore partnerships between industry and 
agriculture, specifying that the country's food processing industry, 
if located in agricultural areas, could "transform India's rural 
landscape."  (Comment: Although private investment in food 
processing would potentially promote rural development, Patil's 
argument ignores primary barriers to rural investment including lack 
of infrastructure, basic roads, electricity, internet and other 
essential public services that would be necessary to support food 
processing industry.  End Comment.)  Patil also barely hinted at the 
ongoing debate in India on biotechnology, noting that "there should 
be use of new technologies, better seeds, and improved farming 
practices."  (Note: The GOI is currently holding public hearings 
before issuing final approval for Bt Brinjal. End Note.) 
 
The Blame Game and Broader 
Implications for Food Security 
------------------------------- 
 
¶11. (SBU) Comment:  Arguing over who is to blame for food price 
inflation has taken on increased significance over the past couple 
of weeks, providing a glimpse of internal divisions within the GOI, 
the highly political nature of food policies and also a clearer 
understanding of India's struggle to deal with domestic food 
security..  The absence of the Congress Party's strong support for 
Minister Pawar, a key figure in pushing forward on agricultural 
policies and reforms, may be a signal of difficulties down the road 
for the Ministry of Agriculture.  Pawar's remarks on milk prices 
demonstrate that any comments related to agriculture and food policy 
are potentially explosive.  While the central government's measures 
target containment of prices of essential commodities, the measures 
offered do little in terms of the easiest fix -- the release of 
government stocks -- and do not actually address systemic and 
structural constraints on supply and improved agricultural 
productivity. 
 
¶12. (SBU) The political fallout related to food prices also 
demonstrates the difficulty the central government has implementing 
policy changes on matters that are predominantly under the authority 
of state governments.  Further, as Indian officials became more and 
more concerned with rising food prices, their reaction has been to 
tighten borders.  Thus, at present, no wheat, rice (except expensive 
basmati), vegetable oil or other essential food commodities can be 
exported.  This has had a negative regional impact on food security, 
as neighboring countries, which also face supply-side constraints, 
are unable to purchase food staples from India.  Overall, India's 
 
NEW DELHI 00000188  004 OF 004 
 
 
difficulty containing domestic food price inflation will likely 
remain a dominant political and economic issue and may limit the 
GOI's ability to engage constructively on regional food security 
issues.  End Comment. 
 
ROEMER