Rising prices might push millions of Indians into poverty: ADB

New Delhi: Rising food prices in India might push millions of people into extreme poverty, multilateral lending agency the Asian Development Bank (ADB) has warned in a report released on Tuesday.

According to the report titled ‘Global Food Price Inflation and Developing Asia’, a 10 per cent increase in food prices will push as many as 23 million Indians living in the rural area and 6.68 million in the urban zone below poverty line at $1.25 (around Rs. 55.65) earnings a day.

It added that a 20 per cent rise in food prices will push 45.64 million in rural areas and 13.36 million living in cities into extreme poverty.

In case of a 30 per cent surge in food prices, a whopping 68.45 million rural people and 20.04 million urban people would be affected.

These findings come amid last week’s Planning Commission’s preliminary data that India’s poverty is estimated to have declined to 32 per cent in 2009-10 from 37.2 per cent five years ago.

Food inflation in India remained in double digits for greater part of last fiscal. Though it has shown signs of moderation since March, it is still hovering above the government’s comfort level of 5-6 per cent growth.

India’s headline inflation has remained above 8 per cent since February 2010. Overall inflation in March stood at 8.98 per cent, above the government’s projection of 8 per cent.

Some countries (such as China, India, Indonesia, Republic of Korea, Malaysia and Thailand) are fighting inflation through tighter monetary policy.

“To the extent that inflationary pressures are supply driven, as in 2007-2008, higher interest rates may be less effective in controlling it,” the report said.

RBI has increased its lending rates eight times since March 2010 to check inflation. The central bank is also expected to raise the short-term lending (repo) rate by 25 basis points in the annual credit policy on May 3.

The report, however, commended India’s increasing investment in agriculture to bolster productivity and keep food prices in check.

In recent months, food price inflation has reached double digits in Bangladesh, China, India, Indonesia, the Republic of Korea, Pakistan, Sri Lanka, and Viet Nam, the report said.

Resurgent food prices are also likely to dampen growth prospects for the Asian economies.

“In India, Indonesia, and Malaysia, in particular, the adverse effects of the increase in global food prices in 2011 tend to take a larger toll on GDP growth in 2012 rather than in 2011,” the report said.

As per the report, if the global food and oil price hikes seen in early 2011 persist for the remainder of the year, economic growth in the region could be reduced by up to 1.5 percentage points.