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Bite the price bullet

Food prices also get pushed up by the invisible hand of the markets and the very visible hand of the government. Add to that a coy monsoon and food inflation is rising at an alarming 1 per cent a week, when wholesale prices overall are declining

india Updated: Jul 31, 2009 22:56 IST

The continuing story in the inexorable rise of food prices is that the population is growing faster than grain output. At an estimated 1.5 per cent, the annual rate of increase in population is ahead of the 1 per cent growth in grain production in 2008-09.

Food prices also get pushed up by the invisible hand of the markets and the very visible hand of the government. Add to that a coy monsoon and food inflation is rising at an alarming 1 per cent a week, when wholesale prices overall are declining. Depending on how you choose to measure it, food makes up from 25 per cent to 65 per cent of the weight in the several price indices the government puts out. The continuing pressure of food on the price line, particularly when the world is in a recession, merits serious attention.

In 2008, grain prices joined the sharp spike in commodity prices the world over. Rice was quoting at twice its price a year ago, and wheat 50 per cent more.

These levels have not been witnessed since the 1970s. The drastic falls in most of the speculation-driven prices, for instance energy costs, after the financial bubble burst is September 2008 did not carry over to the price of grain, which was in actual short supply.

Although India did not go import these wild fluctuations, the government on its part added to the inflationary process by hiking the procurement price for all crops by 30 per cent in 2008-09. Since a fifth of the wheat and a fourth of the rice the country produces is bought by the State for subsidised distribution to the poor, this effectively acts as a price floor for the market.

Looking ahead, the prospects of a respite in food inflation appear dim. Halfway into this year’s monsoon season, rainfall is still 19 per cent short. Although agriculture requires a fraction of the precipitation, the spectre of a deficient monsoon is enough to spur speculative trading in farm output. So far, the liklihood of drought is diminishing.

Yet there might by an impact on kharif sowing because 19 of the 36 subdivisions are reporting below average rainfall. The monsoon has been consistently above normal since 2006. However, the consumer price index for industrial workers, which tracks food inflation better, has persisted above 5 per cent. There is a lot riding on the rains this year.