Context: 

Recently, CARE Ratings released a report titled ‘Erratic Monsoon, Food Prices, and Rural Demand’.

Highlight of Report

• Erratic Monsoon: An erratic progress of the southwest monsoon has resulted in a spike in the prices of the domestic food basket, which has a weight of about 40 per cent in the CPI inflation basket.
  • Food inflation will maintain an elevated trajectory in the coming months, gradually receding by October in conjunction with the influx of fresh harvest into the market.
  • Demand-Supply Mismatch: Irregular monsoon and lower acreage could lead to a demand-supply mismatch, increasing inflationary pressures in the food sector, with pulses and cereals already experiencing double-digit inflation.
  • Low Kharif Sowing: Kharif sowing for crops like pulses (-8.3%), jowar (-7.7%) and oilseeds (-0.9%) remains lower than last year raising concerns about agricultural productivity.
• Rural Demand and Income Concerns: A potential rise in food inflation may dampen the fragile recovery in rural demand, posing risks to income levels and consumption.
  • Stagnant Wages: Virtually stagnant wages, constituting 49% of rural household incomes, further compound the risk.
  • Government Subsidies: Budgeted cuts on subsidies introduced during the pandemic could weaken rural demand even more.
• Risk to global food prices remains elevated with recent weather-related disruptions in South Asian countries and geopolitical developments.

News Source: The Hindu