The Big Picture – How Food Inflation will affect Economy?

  • June 20, 2016
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The Big Picture- RSTV
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How Food Inflation will Affect Economy?


Food inflation has raised its ugly head again with vegetable prices sky rocketing and Consumer Price Inflation (CPI) reaching 21 months high at 7.55%; coupled with reduction in industrial production. The surging food prices, especially of vegetables and pulses have chronically affected the poor. This has led the government to increase buffer stock of pulses.

Vegetable price rises are considered to be seasonal phenomenon and is expected to mellow down with incoming of monsoons. However, the grim picture sets in when the forecast of surplus monsoon has been initiated with a shaky start of 22% deficit rainfall till June 15th. Cooling prices of wheat, rice and potatoes has added to farmers and consumer woes, and economy at large. A larger picture though points out to the fact that monsoon is not the main reason of price rise of vegetables and especially pulses.

Rise in pulses price has become an annual phenomenon. Lack of change in cropping pattern and increasing gap of demand and supply has aggravated the food inflation. Demand is increasing every year with current demand of 22 million tons whereas the supply is hovering around 18 million tons. This leads to increased imports, which is majorly done by private sector than government. As a matter of fact, Myanmar and African countries are approached to supply the Indian markets with legumes to control the rising prices. There have been increased cases of farmer suicides and distress migration

Major reasons of price rise—

  • Unchanged focus on wheat and rice production,
  • Non-inclusion of pulses in National Food Security Act,
  • Unseasonal rains hampering crop production and thus supply and distribution
  • Hoarders and traders in addition create artificial food scarcity to spike up the prices during peak and crash them when with abundant market supply (one of the reason farmers do not venture into growing pulses)


Way Forward:

Long term measures to deal with the price rise—

  • Structural changes in cropping pattern by incorporating pulses with cereals in Haryana, Punjab
  • Investment in agricultural research
  • Introducing pulses in NFSA
  • Strengthen back-end infrastructure like warehousing facilities, cold storage, and rural infrastructure to arrest inflation
  • Allowing different varieties of pulses to be grown in different areas instead of any uniform cropping policy for it

Short term measures

  • Importing as a practice to stabilize price rise
  • Change in FCI working as well as the procurement process
  • Rational MSP for different crops
  • Stopping wheat procurement which is already overflowing in FCI godowns
  • Implementing efficient supply chain management
  • Optimally using the funds from Market Stabilization Fund
  • Effective utilization of Administered Price Mechanism by creating synergy between government and market procurement

Political economy of food inflation is different from general inflation. It affects the poor the most, thus state government should be empowered to control price rises at state level. Central government should focus more on creating infrastructure to support the production. Food inflation cannot be curtailed by monetary policy, but it affects it indirectly. High inflation rates do not support decrease in interest rates which can affect the attainment of 9% GDP growth. Government has introduced measures in the annual budget to combat price rise through buffer stock of pulses, MSP and Market Stabilization Fund of Rs. 900 crores.

Ministry of Agriculture and Ministry of food and civil supplies should work in harmony to decrease the price rise burden on common man. As the budget mentions, “monitoring process of essential food products is key element of good governance” This needs to be now implemented in the right spirit.


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