It’s imperative to curb food inflation, but does govt have political will to take necessary measures?

Surging inflationary pressure needs urgent attention from policymakers as it affects household purchasing power, especially among poor consumers, who spend a major portion of their income on food

Representative Photo (Getty images)
Representative Photo (Getty images)
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K R Sudhaman

Several countries are presently in the grip of inflation. The phenomenon is being attributed to excess money being pumped into the system in a bid to manage the situation arising in the wake of the Covid pandemic.

In India’s case, the upwardly trend of inflation is a matter of concern as it is driven mainly by food and fuel prices, which hits marginalized and poor sections of the population very hard. The impact is more pronounced unlike in advanced economies. Agriculture expert Ashok Gulati, who is presently in ICRIER, is correct when he says monetary policy alone cannot be the panacea to control inflation; rather prudent tightening on the fiscal front is also required.

India is facing pressure from both wholesale and retail inflation consistently since 2021. Inflation base on wholesale price index (WPI) has been in double digit for almost a year and touched 15.8 per cent in June 22. Consumer price index (CPI) has been on the rise since October 2021 and was at 7.01 in June 22, breaching RBI’s upper tolerance level of 6 per cent. Some experts believe this is because of the failure of RBI to maintain price stability of the economy.

Since 2016, India’s central bank has adopted the flexible inflation targeting framework with medium term inflation target with a band of plus or minus two per cent to maintain price stability.

In an article in ICRIER’s agri food trends and analysis bulletin, Gulati along with economists Shyama Jose and Manish Kumar Prasad are of the view that the worrying factor is that much of inflationary pressure in India, particularly at the retail end, is due to food, fuel and light sub-groups which together contribute more than half of the retail inflation in June 2022. Vegetables, oils and fats and cereals contributed significantly to the food inflation.

They argue that vegetables contributed the highest share to food inflation in June 2022, with tomatoes registering the highest inflation at 158.8 per cent. Vegetables accounted for nearly one third of the food basket.

Low price realization in tomatoes last year forced farmers to shift acreage to other crops, resulting in short supply of tomatoes this year. High fuel prices further accentuated the problem.

In the case of wheat, low production this year resulted in a surge in prices.

As food is an important contributor to retail inflation, urgent attention is needed to tame it in a country like India as it has the potential to even topple the government as was witnessed in Delhi in the late 1990s when surging onion prices made the electorate vote against the ruling party in the Assembly elections.

This issue cannot be taken lightly. Surging inflationary pressure needs urgent attention from policy makers as it affects household purchasing power, especially among poor consumers, who spend a major portion of their income on food.

The question that arises is, what are the measures needed to stabilise food inflation.

The first step is to ensure monetary tightening. But it is a known fact that RBI has recognized that it has been way behind the curve for long, and needs to raise short term rates quickly and significantly and bring it to pre-Covid period by the end of this fiscal. Accordingly, the short-term rates have been hiked in the last couple of monetary policy statements.

But the effectiveness of tightening money supply remains limited in curbing food inflation as it is largely driven by global inflationary pressures and supply side bottlenecks rather than excessive demand in the economy.

During the pandemic, high food and fertilizer subsidy accounted for nearly 40 per cent of Central government tax revenue. With various other corporate tax concessions, fiscal deficit shot up to 9.2 per cent of GDP in 20-21 compared to 6.7 per cent in 21-22.

The medium-term fiscal deficit target is around 5 per cent of GDP. In 2022-23, it has been targeted at 6.4 per cent, but economists fear it is unlikely to be achieved in the face of global inflation and the difficult geo-political situation which will only make it worse for the global economy.

Along with monetary tightening, a tight leash on runaway fiscal deficit is needed with a clear road map for medium term fiscal consolidation.


The third major step needed to stabilise food inflation is to have a liberalized trade policy in contrast to knee-jerk reactions like the government ban on wheat exports and restricted exports of sugar, which will only worsen India’s farm economy.

India also needs to rationalize its import regime through reduction in tariffs and duties across board on farm items.

Fourthly, the contribution of crude oil to cost-push inflation in agriculture can be stabilised by increasing investments in ethanol production from sugarcane on a sustainable basis.

The suggestions made by ICRIER are a no-brainer. These are well known steps to curb food inflation. The question is, how much political will the Central and state governments have to carry them forward.

But one thing is very clear: there are no short cuts to deal with the inflation, particularly in the context of food and fuel, and the longer the government delays taking hard steps, the longer will be the misery.

One thing, however, is certain: the road ahead for the economy is not going to be smooth.

(IPA Service)

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