Here are frequently asked questions about food prices in India:
What drives food inflation to rise?
Adverse weather conditions: Last year’s drought and ongoing heatwave led to a significant decline in supplies of staple foods such as pulses, vegetables and grains.
Supply chain disruption: High temperatures in nearly half the country, rising 4 to 9 degrees Celsius above normal, damaged harvested and stored vegetables and hampered the planting of crops such as onions, tomatoes, eggplant and spinach.
Challenges of seasonal farming: Farmers usually prepare vegetable seedlings before the monsoon rains from June to September, but this year, excessive heat and water scarcity have disrupted the planting and replanting of seedlings, exacerbating the shortage.
Why didn’t the monsoon help?
Although the annual monsoon arrived early and progressed quickly to cover western Maharashtra ahead of schedule, this initial momentum quickly waned, resulting in an 18% rainfall deficit so far this season. The weak monsoon delayed the planting of summer crops that depend on sufficient rainfall. Despite intermittent rainfall in June, the India Meteorological Office has forecast above-average rainfall during the rest of the monsoon season, offering some hope for agricultural production.
When will prices go down?
Vegetable prices It is expected to land from August onwards if the monsoon revives and covers the entire country as per the usual schedule. However, possible floods or a prolonged dry spell in July and August could disrupt the production cycle. The prices of milk, grains and pulses are unlikely to fall soon due to tight supplies. Wheat supplies are dwindling, with no plans from the government to import the grain, which is likely to allow wheat prices to rise further. Rice prices may also rise as the government has raised the minimum support price for paddy rice by 5.4%.
Can government intervention help?
Government interventions, such as restricting exports and reducing imports, can help reduce the prices of some food commodities. However, “the government can’t do much when it comes to prices of vegetables that are highly perishable and difficult to import.” Although measures such as restricting exports of sugar, rice, onions, and wheat were implemented, these measures proved unpopular among farmers and led to electoral losses for the ruling party in rural areas. With state elections in key agricultural states approaching, the central government may allow prices of some crops to rise instead of taking strict measures.
Why are food prices still a concern despite declining retail inflation?
Retail inflation, measured by the Consumer Price Index, has gradually declined, reaching a 12-month low of 4.8% in May 2024. However, “this positive trend faces potential repercussions due to persistent pressures on food prices,” especially in countries Developing. Vegetables and legumes, with the overall food inflation rate remaining steady at 7.9%. The central bank has constantly warned of volatile food prices, which are particularly affected by weather-related shocks such as the recent heatwave. These fluctuations have kept food inflation high, complicating the Reserve Bank of India’s goal of keeping inflation at its 4% target.
Economic prospects and monetary policy implications
Given stubborn food price pressures, the Reserve Bank of India kept interest rates at 6.5%, stressing the focus on withdrawing easing to align inflation with its target while supporting growth. Prospects of interest rate cuts are on hold as the Reserve Bank of India assesses inflationary pressures amid volatile weather conditions. Despite these challenges, India’s real GDP growth in the first quarter of 2024-25 is largely maintaining momentum, as global economic growth has prompted many central banks around the world to adopt a less restrictive monetary policy stance.
(With inputs from agencies)