Rise in food prices cause for concern

  • Hindustan Times
  • Updated: Jun 15, 2016 18:29 IST
A vegetable vendor in Indore. Vegetable prices, which held steady till recently, are climbing again. (Hindustan Times)

The increase in retail prices, particularly those of food, in May has taken place just when the government hiked by a hefty amount the minimum support prices (MSPs) of kharif pulses and oilseeds. The retail food inflation rate has been 7.55% in May, as against 6.40% in April but 4.80% in May last year. And since experience has shown that an increase in MSPs does not necessarily translate into an expansion in acreage, inflationary tendencies in the farm sector are bound to get a boost by the hike. Pulses prices were controlled last year after arhar or tur dal’s retail rates went at more than ₹200 a kg in some regions, while the countrywide average price of lentil was around ₹160 a kg, more than double of the ₹75 a kg in 2014. Prices of tomatoes and onion, after having stabilised, are soaring again. That farm growth in 2015-16 is expected to be just 1.1% makes the food story all the more depressing but not surprising because 2015 was a year of bad rains. And it is no coincidence that the whole price index also increased 0.79% in May, after having risen 0.34% in April, following 17 months of contraction.

Read | Food prices on fire, Jaitley to meet top ministers to review situation

Price rise in the farm sector is a function of either weak supply or high demand. In India, it is predominantly the former. The agriculture ministry had estimated wheat production in the country at more than 94 million tonnes in 2015-16. However, procurement has been just about 23 million tonnes and is likely to fall short by 5 million tonnes. The highest shortfalls in procurement have been observed in Uttar Pradesh and Madhya Pradesh. The ministry, in one of its advance estimates, has calculated that pulses production would be 17.06 million tonnes, the lowest in about five years. The Indian Sugar Mills Association has put sugar output at 25 million tones, a substantial drop over the previous year (the sugar year is October-September). It has also been observed that news of such shortfalls causes an anticipatory rise in prices, as has been happening now. And though this year is expected to have good rain, the summer arrivals will not take place before August-September. Much hope rests on the government’s projection that agricultural output in 2016-17 will be 270 million tonnes, as against 253 million tonnes last year.

Read | Sluggish monsoon sparks new fears as vegetables push up food inflation

It needs no stressing food inflation is the most emotive of all kinds of inflation. And that is why the RBI has not been able to cut lending rates as must as India Inc might have wished it to. In fact RBI governor Raghuram Rajan has given enough hint that he has restricted manoeuvrability in this matter because any cut in rates would infuse more money into the economy, pushing the inflation rate up. So the ball is now squarely in the court of the government, which has to have all contingency measures ready in case the monsoon does not prove to be as bountiful as it is expected to be.

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