India’s Food Inflation Challenge: Causes and Solutions | PWOnlyIAS 2023

Context: This article is based on an Editorial “ Where has India’s record wheat and rice output gone?” which was published in LiveMint. This article is expressing the concerns of the food inflation trend observed in India. It also focuses on the recent steps taken by the Indian government for wheat and rice procurement and marketing.

Persistent Food Inflation: Cereal Crisis

• Persistently high inflation in cereal prices, particularly wheat and rice which lead to food inflation.
• Inflation in Cereals: In August, cereals contributed almost as much to the Consumer Price Index (CPI) inflation as tomatoes. It accounted for 15.49% as compared to 15.51% for tomatoes.
• Inflation in Rice: In August, rice CPI inflation was 12.5%.

Steps taken by the Indian Government to control Food Inflation:

• Ban on Export: The government has put a ban on wheat exports since May 2022 and on the export of atta and similar products since August 2022 to control food inflation.
  • The government banned exports of non-basmati rice too.
• Placed Export Duty: The government, selling from its stockpile at prices lower than their economic cost, has placed a 20% export duty on parboiled rice.
• Ban on Stockpiling: The government has also banned traders, millers, wholesalers and retail chains from holding more than 3,000 tonnes of wheat. Smaller retailers and shops cannot stock more than 10 tonnes.
• Procurement to combat food inflation: The government procured all of 18.8 million tonnes of wheat against a target of 43.3 million tonnes.

Reason of high food Inflation in Indian Scenario:

• As per analysis by agricultural economist Ashok Gulati, non-basmati rice exports surged from 1.38 million tonnes in 2019-20 to 6.4 million tonnes in 2022-23 causing high food inflation. .
  • As per him, these exports occurred at prices lower than the minimum support price (MSP).
• Rice from the free food program is leaking out of the country in significant quantities and leading to higher domestic prices and leading to food inflation.

Challenges of Food Inflation and Procurement

• No improvement in Procurement: The desperate measures—controls and limits on stocks that are being used for the first time in 15 years, to access supplies did not help improve procurement much.
• Stressing of Exchequer: Government buying products at market prices in competition with private buyers would bankrupt the exchequer.
• Stressing Farmers’ Income: It was decided to beat down market prices, resulting in decreasing farmers earnings and meant defying the Prime Minister’s instructions of doubling farmer incomes.
  • By selling wheat from the government’s stocks at prices lower than its economic cost (of buying, transporting and storing), market prices were dragged down to the MSP level.
• Reduction in Consumption: Reduction in farmers earnings reduces consumption spending in the economy.
• Impacting the Economy: The food inflation and supply mess can spill over into the rest of the economy, distorting policies all around.
• Hike in interest rates of the Central Bank: High retail inflation could force the central bank to hike interest rates, hurting India’s economic recovery and blowing up the treasury and threatening fiscal correction.

Conclusion:

• Import of Wheat: The only effective way to guard against a high food inflation  is to import wheat. The same was followed in 2016-17. International wheat prices are currently affordable.
• Role of Opposition: The opposition needs to spend its time to focus, raise questions and aware India’s population about inflation in India’s food markets.
• Supply Response:  Raise agricultural production and productivity, improves supply chain management and sets the right incentive framework for both producers and consumers.
  • The outlook on food inflation in the short to medium term will be determined by the speed and quality of such a supply response by the Government.

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