India’s Food Inflation

India’s Food Inflation

News: Recently, An ICRIER paper, “Tackling Food Inflation: Is restricting exports and imposing stocking limits the optimal policy?” discusses the causes of high food inflation in India, and government actions, and suggests alternative solutions.

What is ICRIER?
• The Indian Council for Research on International Economic Relations (ICRIER) is one of India’s premier economic think tanks.
• Established in 1981, ICRIER is an autonomous, policy-oriented, not-for-profit, economic policy think tank. It aims to provide policy advice to effectively deal with external economic shocks

What is Current status of Food inflation in India?
• India’s retail inflation in August 2023 is at 6.83%, exceeding the desired ceiling of 6%. Food and beverages contribute significantly, making up 57% of retail inflation. Food inflation has risen sharply to 9.94%, impacting overall retail inflation.

What are the causes of Food inflation in India?
• Supply Shocks - The current food inflation is largely supply shock-driven. Short-term supply shocks, such as poor weather conditions, have occurred. Supply-chain disruption due to the pandemic, RussiaUkraine war also is one of the reason.
• Rising Cost of Production - Rise in cost of production and Minimum Support Price (MSP) are the main drivers of cereal inflation.
• Increased Demand - Increased income and dietary variety increase the market for food items and add to inflationary pressures.
• High international prices
• Increased transportation costs and increase in prices of key inputs also contribute to food inflation.

What are the recent initiatives taken to contain food inflation?
• Wheat Export Ban in May 2022
• Rice Export Restrictions – Halted exports of broken rice (September 2022) and imposed export ban on non-basmati white rice (July 2023)
• Rice Export Duties - Imposed 20% export duty on parboiled rice (July 2023)
• Export Duty on Onion - Imposed a substantial 40% export duty on onions (August 2023)

Key recommendations:
• Reduce import duties on edible oils and wheat. Import prices should ideally be lower than MSP.
• Build buffer stocks for volatile vegetable staples (TOP)
• Expand cold storage infrastructure and use solar energy for storage
• Support Farmer Producer Organizations (FPOs) and farmer cooperatives. Use schemes like “Operation Greens” to support FPOs and processing facilities.
• Promote processing of at least 10% of fresh produce
• Invest in R&D to enhance productivity and climate-resilient farming practices
• Increase irrigation coverage through micro-irrigation infrastructure