With food inflation rearing its ugly head again, the government’s plan to rein in interest rates to spur growth faces two more potentially difficult monsters: the El Nino Effect on the monsoon and the Iraqi crisis that could stoke oil prices. Government sources say a quick way to pre-empt a mess would be import of food items including pulses and edible oil.
Wholesale price inflation rose to 6% in May, up from 5.2% in April, belying expectations.
“We are monitoring the situation very closely and are looking at options that could help. One of the options that is available to us is to import a few food items before the situation goes out of hand,” a senior official, who did not wish to be identified, told Hindustan Times.
On June 7, bureaucrats heading key ministries, led by Cabinet secretary Ajit Seth, took stock of inflation, particularly of food commodities and other essential items, bracing for the possibility of a deficient monsoon from an adverse effect from El Nino, the Spanish name for warm Pacific Ocean currents that influence rains in India.
Agriculture Secretary Ashish Bahuguna made a presentation on anticipated farm output at the meeting. Should the monsoon turn out to be poor, public sector undertakings may be asked to intensify purchases of essential commodities for distribution through government-influenced retail networks, an official said.
The Iraqi Crisis following a civil war has taken global crude oil prices to nine-month highs and if this persists, it may take up the government’s subsidy bill and fiscal deficit precisely when it was ready to control them.
“It is critical to be vigilant and there could be further pressure on prices due to factors like the El Nino and the political crisis in Iraq. It would be wise to start import of pulses and edible oil at the right time rather than wait,” said DK Joshi, chief economist, Crisil.
India gets two-thirds of its oil needs from imports that cost $145 billion (Rs. 8.7 lakh crore) and Iraq is its second biggest supplier after Saudi Arabia. A knock-on effect on fuels will drive up consumer prices all around.