Food inflation

Reports state that the decision was taken on Wednesday when Union Finance Minister Arun Jaitley met with Ministers and Secretaries from various Ministries to discuss rising prices. Data released earlier this week for the month of May indicated that food inflation rose to 7.55 percent– it was 6.4 percent in April – and vegetable price inflation jumped from 4.82 percent in April to 10.77 percent in May. 

The spike in retail inflation to 5.76 percent in May from 5.39 percent in April has been attributed to rising food and vegetable prices. In its bid to tackle rising food inflation, the Centre has identified the prices of pulses as a cause for major concern. The supply of these crops has suffered because of deficient monsoons for the past two years. 

The country needs around 22 million tonnes of crops a year, while it manages to produce only 17 million tonnes annually. The Centre has decided to maintain its buffer stock of one million tonnes of pulses as a fallback option by continuing to procure the crops from farmers and through imports. 

India has recently signed a deal with Myanmar to acquire pulses. The Centre’s move comes at a time when some pulse varieties are retailing at a high of Rs 170 per kg due to a supply shortfall caused by consecutive droughts, according to Mint. 

Beyond these measures, the solutions for combatting this kind of inflation call for increases in land under pulses. Tomato prices have also been identified by the Centre as another cause for concern. The price of the vegetable touched Rs 100 per kg in some parts of the country, like Hyderabad. The government has decided to strengthen the supply chain to deal with the paucity and thus control the price.

 "There are too many variations in prices of tomato as one moves from the place of production to the point of consumption. The government plans to improve the supply side constraints," the report said, quoting a government official. However, Union Food Minister Ram Vilas Paswan held that the hike in tomato prices was a seasonal one.

Food inflation is a very sensitive subject for the average citizen. Food prices form an important part of his/her budget. Any rise in prices can further ramp up inflationary pressure. “The whole issue of food price management is essentially a question of ensuring adequate supplies and removing bottlenecks in distribution,” says a report in The Hindu Business Line.

 “Tight liquidity will aggravate the troubles of various sectors, including the farm sector. Therefore, the Government should not hesitate to release sufficient quantities of food from its buffer stocks. After all, the buffer stock is meant to deal with situations of price rise and shortage.” 

In this case, the BJP-led government has identified the problem and sought to resolve it as soon as possible. Whether these steps will contain prices for the common man is yet to be seen. Nonetheless, the structural changes required to boost pulse production are extensive.

 "Identifying land for growing pulses must go hand in hand with promoting yield-augmenting and resource-saving technologies along with providing farmers better access to remunerative markets," says Girish Aivalli,  MD and CEO of Rural Agri Ventures. For the short-term, buffer stocks and imports may suffice. But for the long term, the Centre needs to heavily invest in structural changes.

 Last week, the Reserve Bank of India (RBI) warned against rising inflation in its monetary policy review, while leaving policy rates unchanged. The Central bank expects a moderation in food inflation because of the Met department’s forecasts of an above-average monsoon. But the rise in the prices of petrol, diesel and food items in the last month could lead to a further increase in costs. Effectively, it rules out any policy rate cuts by the Central bank in its next policy review in August.