The fever in food inflation has gone past the normal range yet again. The food price index rose 18.40% in September, higher than 18.18 % in the previous month, and is cantering dangerously close to the worrying 20% mark. Empirical evidence over the past few years show that high food inflation in India appears to have followed a rather formulaic path. There is much more to food inflation than costly onions would suggest. The tears also lie elsewhere. It is appropriate to assume that vegetable and onion prices would start tapering as a variety of seasonal crop enters the market. This is precisely what policy-makers have been telling us for some time now, but past years’ data show that there could pressure points hiding elsewhere. For instance, dearer protein-based products such as milk, egg, meat and fish, as we have seen many times in the recent past, can potentially keep food inflation at alarmingly high levels, negating much of the gains that cheaper veggies would have otherwise provided.
Economists are splitting hairs in trying to ensure growth while keeping prices in check and their latest worry is that food prices are revealing a new pattern reflecting the challenges of a growing economy. As the tens of millions of people shift to higher standards of living, the focus is changing from basic needs such as rice and coarse grains to more nutritious protein-rich items. This will sustain demand in an economy in which supply shortage has been the key driver of inflation in the past. There are already signs these would be happening. Milk prices, presumably to cover for high fodder costs, have gone up progressively. The latest Rs. 2 a litre hike on Monday brings home this point more tellingly.
There is no gainsaying the fact that weather shocks like Cyclone Phailin will always be a wild card in food management. Yet, for a variety of reasons such as the National Rural Employment Guarantee Scheme, there has been a shift in income distribution away from the landed class to the landless labour. India is beginning to see a substantial increase in consumer demand at a localised level. Earlier, all marketable surpluses in farm products were ferried from the village mandi to the urban areas. There was very little rural-to-rural marketable surplus. Now, greater rural absorption is leaving lesser surplus available for urban areas. The food inflation we are currently witnessing has its origins in this phenomenon. It is imperative to recognise that rural demand has gone up, and will only rise. The obvious move, therefore, is to make the chain of food supplies from the rural market to the city folk’s plate more efficient through appropriate policy responses that help reduce waste.