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Source- The post is based on the article “How to weather-proof food security” published in “The Hindu” on 15th May 2023.
Syllabus: GS 3- Indian economy – Pricing and inflation
News – There is a degree of comfort in the corridors of the Reserve Bank of India (RBI) as the consumer price index (CPI) inflation figure for April 2023 slid to 4.7 percent, and food price inflation has fallen to even lower, 3.84 percent.
What is the inflation scenario of the country?
The food and beverages component in the Indian CPI has a weightage of 45.86%. Managing this component to around 4% is critical to control overall inflation.
This component of inflation cannot be managed only through monetary policy, nor even by fiscal policy. It is often triggered by external shocks, such as droughts and breakdown of supply chains.
There is a possibility of El Nino, and it could cause below-normal rainfall, even a drought. All droughts since 1947 have been El Nino years, but all El Nino years are not necessarily drought years. IMD’s revised forecast about the monsoon will clear the picture.
The unseasonal rains are also not good for agriculture.
The biggest crop of the kharif season is rice. Rice inflation for April was 11.4% Wheat inflation is still very high at 15.5%. The overall cereal and products inflation is still at an uncomfortable level of 13.7%.
There is a concern about milk and milk products. Inflation in this category in is also high. It has the highest contributions amongst all commodities.
Experts give two reasons for this inflation. Lumpy skin disease had its impact. The milk production growth rate collapsed to almost zero in FY23.
The fodder price inflation has been very high, between 20 and 30%, in recent months. Both these factors have been straining milk prices. These are not likely to come down this fiscal in the business-as-usual scenario.
How high inflation in rice and wheat can be easily managed by the government?
More than 800 million people are getting free rice and wheat under the PM-Garib Kalyan Yojana. So, they are well protected from cereal inflation.
The rice stocks with the FCI are more than three times the buffer stock norms for rice.
If the government wants to control rice price inflation, it can unload 5 million tonnes of rice from the Central Pool in open market operations, and easily bring down the rice inflation to around 4%.
What is the way forward to control the food and beverages inflation?
There is a need to focus on cereal and milk inflation. Both have high weights in CPI. The policy instruments to keep their inflation around 4% are the buffer stocking policy and import policy.
There is a need to lower import duties on fat and skimmed milk. These are currently at 40% for fat and 60% for skimmed milk powder. Indian prices of SMP and fat are much higher than the global prices. That could help in reining milk and milk product prices.
These policy actions must be pre-emptive in nature and not reactive to the event. There is a lag of two to three months for these policy actions to show their results.
