India's Growing Economy Doesn't Help Poor

NEW DELHI, April 11, 2008 — -- Look into Rita Benarji's frying pan and you can see the effect of rising food prices in India.

There, simmering in the oil -- that once cost $3.75, but now costs almost $7 -- are six balls of dough. There used to be eight.

"We make the same amount of money we always have," she told ABC News, stirring her dinner in the Kalkaji slums of New Delhi. "But because expenses are so high, we have to eat less."

Wholesale inflation here is at its highest level in 3½ years -- 7.41 percent -- the government announced today, up from 7 percent a week earlier. That has directly led to higher prices at the markets. Fruits and vegetables are 20 percent more expensive than they were a month ago. In the last year, the prices of some oils have nearly doubled.

That has debilitated some members of the 800 million poor here who live on less than $2 a day. Some eat less, some ration more, all are suffering.

"The prices are so high in the normal market," Suresh Kumar, who runs a "fair-price shop" filled with food provided by the government, told ABC News. He sells sugar for 25 percent less than the local markets, but right now, his shop is empty, unfilled for the last two weeks. "It's very difficult for the normal man."

But India is not the only victim in the global food crisis, which has led to rioting from Haiti to Egypt and could raise the global poverty rate as much as five percentage points, according to the World Bank. It is also part of the cause.

Visit the high-end market in the Vasant Vihar section of Delhi, and there is no shortage of oil or dinner. There is only unprecedented demand.

The Cost of Getting Richer

India has never been richer, and more-affluent Indians have never eaten more meat and more milk -- two types of food that require more grains to produce, therefore reducing the grains left over for the rest of the world.

"The two largest countries in the world -- China and India -- with a total [population] of around 2.2 billion are having GDP [gross domestic product] growth of 8 [percent] to 10 percent, thus giving more income to their population to buy food," Jacques Diouf, the director-general of the U.N. Food and Agriculture Organization, told ABC News in New Delhi.

Two pounds of meat, he said, requires more than 15 pounds of cereals to produce.

"Those who were generally eating essentially rice, when they add meat, or milk … that means your demand of cereals is multiplied by seven for the same caloric value," he said.

And like so many other countries, India has turned inward to protect its citizens. There are more than 600 million farmers here, and they have made the country the world's second largest exporter of rice and the world's third largest exporter of wheat.

Knowing that higher prices helped throw out past governments, the administration took a series of steps to try and limit inflation. In late March, it banned exports of all but the most expensive rice, and it eliminated import duties on most edible oils.

Rising Food Prices

That has directly increased the price of rice around the world, especially among its neighbors from Afghanistan to Thailand, as well as in the United Arab Emirates and the rest of the Gulf. Rice prices have risen by 70 percent, according to FAO.

"Naturally, the first reaction of every government around the world faced with this problem is to attack the price problem. How to cut taxes, how to subsidize the prices," Diouf said. But, he continued, "if you see all the countries do that, the consequences at the global level will be very serious."

Still, the opposition party here thinks it can turn higher prices at the market into votes at the polls, which could come anytime between October and March. And the current administration sounds defensive.

"Government has no magic band to bring down inflation, which is now a global phenomenon," Kapil Sibal, the minister of Science, Technology and Earth Sciences, told reporters this afternoon.

For the millions of poor voters who helped elect the current coalition government, the price of a daily meal has become a burden.

And Diouf warns that because of a global lack of production, prices won't come down any time soon.

"I think," he said, "that we're out of the period of low food prices."