The meeting of G-20 finance ministers in Paris over the weekend had, amid the usual platitudes on “strong sustainability, balanced growth, systemic stability”, three important takeaways — indicators that could measure and tackle the core of the global crisis: trade imbalances and exchange rates (which is at the core of all trade transactions), and finally, the need to control volatility in commodities markets. On exchange rates, while India too, like the West, has objected to China’s tight controls over the yuan, this country is also a victim of potentially destabilising capital flows. Stock markets in emerging economies, particularly India, collapse when capital flows out on negative cues in troubled or uncertain times. The communiqué released at the end of the Paris meeting rightly stresses the need to contain such volatility as it poses a major threat to global food security. It noted the need for long-term investment in agriculture in developing countries, and suggested that containment of oil price volatility should be extended to gas and coal.
The need for greater investment in agriculture was echoed even more stridently by World Bank president Robert Zoellick, who warned that the world was reaching a “danger point” and that soaring food prices posed the risk of “further political instability” across the world. Urging the G-20 ministers “to put food first in 2011”, Mr Zoellick cautioned them that these soaring food prices could “lead to the fall of governments ... and societies could go into turmoil”. If we want an illustration of what he was talking about, just look at real-time developments in Tunisia, Egypt, Bahrain, Yemen and now Libya ... these events are playing out right before our eyes. The fact that these countries are all under one kind of dictatorship or another just made matters worse there. Democracy might provide some immunity or safety valve — so that a government is not overthrown — but it may not prevent political or social turmoil taking place. The UN’s Food and Agriculture Organisation had also raised an alarm over the neglect of agriculture at the World Economic Forum in Davos earlier this year. India is among the countries which has grossly neglected agriculture, and even the money that is spent by the government on this sector mostly benefits the richer farmers with irrigated land. The vast bulk of India’s agriculturists with non-irrigated land, whose fate still depends largely on the rains, get very little. It is estimated that neglect of agriculture costs India at least two per cent in GDP growth. The real test of whether finance minister Pranab Mukherjee has taken this warning seriously will be evident when he presents the 2011-12 Budget a week from now.
On volatility in commodities, it is regrettable India is not vociferous enough in getting at the root of the issue. This country is one of its biggest victims as we depend overwhelmingly on the import of oil, and often on other commodities, including metals, coal and even foodgrains. We should not forget that oil had once touched $140 per barrel — largely due to unhindered speculative trading. Voices have been raised against this in the past, by the Organisation of Petroleum Exporting Countries and others, but this is not just about oil. Commodity prices in general simply cannot be left to market forces alone. The finance minister should remember that given that his government will soon move the landmark Food Security Bill in Parliament, investment in agriculture might need to be trebled, if not quadrupled.