How food inflation can be managed keeping El Nino in mind

Source– The post is based on the article “How food inflation can be managed keeping El Nino in mind” published in “The Indian Express” on 17th April 2023.

Syllabus: GS3- Economy

Relevance– Inflation related issues

News– Reserve Bank of India Monetary Policy Committee (MPC) paused the raising repo rates in its last meeting.

RBI is not blindly following the US Fed in raising interest rates to tame inflation. It reflects RBI’s confidence in containing inflation below 6 per cent.

What are the recent numbers on inflation in India?

The CPI data of March 2023 reveals that inflation has dropped to 5.66%. It is below the upper limit of 6%.

This drop in inflation has been significantly brought about by food inflation.

However, even in food, inflationary concerns remain high in case of cereals, milk and milk products.

What is the future scenario of inflation in India?

Milk and milk products have the highest weight in CPI. Milk production in the country suddenly came to a halt in FY23.

This has been attributed to lumpy skin disease. Although the growth in milk production is gaining momentum, it will take time to cool down milk prices.

The only logical option in the short term to contain milk prices seems to be reducing import duties on skimmed milk powder and butter to about 15%.

In the medium to long run, the GoI should augment good quality fodder supplies and raise productivity of milch animals.

Wheat inflation is still roaring at about 20%. It is likely to come down in the next two months as harvesting and procurement picks up in Punjab-Haryana belt. The unseasonal rains in March has created uncertainty about the wheat output.

In this situation, the government can lower import duties on wheat and allow imports. There should be ample supplies in the country to avoid any distressed situation.

The prospect of El Nino has created a new uncertainty about kharif crops. Several crops could be under stress. However, rice stocks in the country are more than three times the buffer stock norms. So, there is no need to panic on that front.

Edible oil prices are already collapsing due to cheaper global prices of palm and other oils. So, there is no need to worry on that account as well.

But pulses, especially tur and urad, can create problems. So, imports of 2 to 3 mt of kharif pulses by NAFED or through private trade cannot be ruled out.

What is the way forward for inflation management in India?

Knee jerk reaction when prices go up does more harm than good. A good idea is developing commodity futures markets.

India needs to invest in building trust in futures markets. There is a need to improve their efficiency with information symmetry. Bringing transparency through better technologies and regulatory institutions needs to be a priority.

The RBI and Centre jointly need to enhance their tool kit to contain inflation below 5%.