Addressing India’s Food Inflation: Strategies and Solutions.

September 4, 2024

Food inflation in India has consistently hovered around 8% year-on-year since November 2023. A severe heatwave has exacerbated the situation by reducing the supply of pulses, vegetables, and cereals, making government interventions like export curbs and import tariff reductions less effective.

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The Reserve Bank of India (RBI) held a Monetary Policy Committee (MPC) meeting on June 7 to review consumer confidence and inflation expectations. The MPC decided to keep the policy repo rate unchanged at 6.50%, aiming for a consumer price index (CPI) inflation target of 4% within a band of +/- 2%, while also supporting growth.

Most members of the Monetary Policy Committee voiced concerns over food inflation in India, which remains stubbornly high at 8% YoY since November 2023, despite the early arrival of the monsoon rains and forecasts for above-normal rainfall. This persistent inflation has kept the headline inflation above the central bank’s target.

In May, India’s headline retail inflation fell to a year-low of 4.75% from 4.83% in April. However, the Consumer Price Food Index (CPFI) stayed nearly flat at 8.69% compared to 8.7% a month earlier.

Key Factors Driving India’s Food Inflation

During the bi-monthly monetary policy presentation, RBI Governor Shaktikanta Das highlighted that the heatwave and low reservoir levels could further impact the summer harvest of vegetables and fruits. He emphasized monitoring the rabi arrivals of pulses and vegetables.

Since 2023, food inflation has had a significant impact on the Indian economy, with categories like vegetables, pulses, and cereals experiencing sharp price increases. Government data shows YoY inflation rates: vegetables at 28%, pulses at 17%, cereals at 8.6%, meat and fish at 8.2%, spices at 7.8%, and eggs at 7.1%.

The annual monsoon, crucial for India’s agricultural output, began early in the south but quickly lost momentum, leading to an 18% rainfall deficit so far this season.

Other Factors Affecting Food Inflation in India

• Heatwaves and last year’s drought have drastically reduced the supply of pulses, vegetables, and cereals.
• Unusually high temperatures, 4-9 degrees Celsius above normal, have spoiled harvested vegetables and disrupted the planting of crops like onion, tomatoes, eggplant, and spinach.
• Water scarcity has further aggravated the shortage of vegetables by hindering seedling planting and replanting.

When Will Prices Stabilize?

The RBI expects a normal monsoon in the southwest, which could ease food inflation pressures throughout the year.

Commodity-wise:

• Sugar prices are likely to stay high as production is expected to drop.
• Potatoes have become 15% costlier over the last month despite good production, while onion prices are expected to rise due to Rabi production shortfalls.
• Tomato prices have skyrocketed, with prices reaching Rs 100 per kilogram, forcing consumers to reduce consumption.
• Prices for pulses like pigeon peas, black matpe, and chickpeas are also high and unlikely to improve until the new crops are harvested.
• Wheat prices may rise as there are no plans to import grain, and rice prices could follow suit due to a 5.4% increase in the minimum support price of paddy rice.
• The production of summer vegetables like ridge gourd, okra, and leafy greens has been affected by severe heatwaves, increasing prices by 20-25% YoY and 10-15% MoM.

Conclusion

Although food inflation is largely dependent on production, distribution, and climate factors, government interventions like export restrictions and import easements can help reduce the prices of some commodities. The government has allowed limited imports of corn, crude sunflower oil, refined rapeseed oil, and milk powder under the tariff-rate quota (TRQ) system to control rising food prices. However, due to the perishable nature of vegetables, there is limited scope for reducing their prices through imports.

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Read More at:

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2. India’s Banana Exports: The Next Big Leap
3. India’s F&B Exports 2023-24: Processed Food Sector Stays Strong

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How will Indusfood, the upcoming food expo in India, help address India’s food inflation issues?

Indusfood, an upcoming food expo in India, will play a crucial role in tackling food inflation by showcasing advanced food processing technologies and innovative practices. As a major food trade event, it will facilitate connections between industry stakeholders and policymakers, promoting effective solutions for improving supply chains and reducing costs. This international F&B trade show will also highlight best practices in food processing, helping to stabilize prices and address the challenges contributing to food inflation.