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Food inflation needs a policy response

The health of the economy depends on the revival of consumer spending and investment.

editorials Updated: Sep 14, 2015 01:15 IST

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 crops enter 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 can potentially keep food inflation at alarmingly high levels, negating much of the gains that cheaper veggies would have otherwise provided. India’s official numbers say that retail food inflation was 2.15% in July. These, however, could be masking the actual picture.

As skyrocketing onion and other prices show, food costs have more than doubled from last year. For middle-class consumers, food inflation worries are creeping back. Sample this: Arhar is now selling at Rs135 a kg in some areas of Delhi compared to Rs82 a kg in September last year. Worse, it has risen more than 50% since April. The tale is similar in other lentils such as urad, moong and masoor.

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. The spike in prices of pulses brings home this point more tellingly.

Costly staples are something that both the government and families want to avoid ahead of the festival season. Millions of Indian families still spend a large proportion of their income on food items. Since monthly kitchen budgets cannot be cut, higher food prices force families to cut other ‘non-essential’ expenses.

India is showing budding signs of recovery in the broader economy. The latest data show India’s ‘real’ or inflation-adjusted GDP grew at 7% in the first quarter of 2015-16, slower than the last quarter, but faster than many other countries. A lot is riding on the anticipated revival in consumer spending and investment revival in the coming festival months for the economy to gather speed.

It is about time to keep the inflation monster firmly bottled up with appropriate and immediate policy and administrative responses.

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