Food inflation in India, 2011

Intensifying affluence in rural India is leading to food scarcity, which is driving up food prices says RBI Governor D Subbarao. Since rural incomes are going up, people are eating better by shifting from cereal to protein (rich diet) and it is leading to food scarcity.

Food inflation is now morphing into a structural feature and is being driven by rising food demand in a fast-growing economy plagued by a creaky food supply chain, endemic inefficiencies and poor infrastructure in the critical agricultural sector. “This year, inflation seems to be driven by demand factors, despite higher supply levels,” the Survey said. This is in contrast to the fact that in the last fiscal, inflation was mostly driven by a deficient monsoon, leading to scarcity of certain food products like pulses, cereals and sugar.

Punjab’s cultivation is an instance for the other states:

Food scarcity could be tackled effectively if half of the states in the country would touch the productivity level achieved by Punjab, the country's food bowl. Punjab's food grain yield is pegged at 4,231 kg per hectare against the national average of 1,909 kg per hectare. For stepping up farm productivity and production, it is necessary to increase investment in water management and rural infrastructure, Subbarao said. About 60 percent of the country's farm land relies on rain water for irrigation.

What can be the possible solution to tackle this problem? India cannot import food as it has to feed around 1.2 billion people. Our food prices are lower than that of world prices. The country cannot import food and sell them here unless it subsidizes. Subsidizing food on a large scale is unimaginable.

There exists a paradoxical situation of subsidizing farmers for producing food and subsidizing consumers so that that they get food at lower price. It is simply unsustainable. Focus should also be there in reducing risks due to poor monsoon.

Efficiency in agriculture can be an aid to subordinate food prices:

“Primary articles inflation has been an issue due to surging demand and supply shortage,” said K. Ramanathan, Chief Investment Officer-Single Manager Investments, and ING Investment Management India. He also stated that more focus needs to be there on mounting acreage/arable land and productivity in agriculture.

Higher claims on subsidies (food, fertilizer and oil), pressures to increase social spending in the background of several State elections and absence of one-offs like the 3G bounty (which accounted for almost 1.3 per cent of GDP in 2011) would be the challenges the finance minister has to compete with. India’s food inflation accelerated to a one-month high and services growth quickened, bolstering the case for more interest-rate increases.

Food Inflation among the world economies:

 India's food inflation was the second lowest among all emerging economies in the 2010 calendar year and the country also witnessed one of the steepest declines in overall inflation, the Survey said. It said India's average food inflation in November, 2010, was 5.4 per cent, far lower than 15.8 per cent in Argentina, 9.2 per cent in Brazil and 11.7 per cent in China, as per data on 15 emerging nations from the International Labor Organization for the month. Other major emerging economies, including Argentina, Brazil, China, Egypt, Iran, Pakistan, Uruguay, Ukraine and Indonesia the Survey also blamed currency competition for creating inflationary pressure in emerging economies. Talking about the issue, it said each country's central bank is taking steps according to their own views. "This has given rise to destabilizing currency competitions and may be a factor behind the recent increase in inflation in emerging economies," the Survey said.

Food inflation keeps fluctuating from time to time in February 2011:

India's annual food inflation rose to 11.49 percent for the week ended Feb 12, according to official data released Thursday. The data showed that the food inflation has marginally increased 0.44 percentage points from 11.05 percent recorded in the previous week. The annual inflation based on wholesale prices was 8.23 percent in January, while it stood at 8.43 percent in December, 2010. Commenting on the inflation rate Prime Minister Manmohan Singh informed Lok Sabha that food inflation would come down with the overall inflation to be no more than 7 percent by March-end. 'By the end of this fiscal year, inflation will be controlled. I expect the situation to improve,' Manmohan Singh told the Lok Sabha, replying to a debate on the motion of thanks to the president's address. Meanwhile, the annual inflation for primary articles was up 15.77 percent during the week ended Feb 12, in the latest week, compared to 14.59 percent in the previous week.

Budget 2011 stands as a hope:

Pranab Mukherjee, Finance Minister however exuded confidence that the RBI's monetary policy would lead to moderation in inflation in the coming months. He also put emphasis on increasing agricultural productivity to curb food inflation. Presenting a silver line however he affirmed, last year had been a remarkable fiscal year and that the Indian economy was expected to grow steadily at 9 per cent. As per the fiscal deficit reduction road map, the deficit is to be cut to 4.8 per cent of GDP. Mukherjee said: “I see Budget 2011-12 as a transition towards more transparent and a result-oriented economic management.”