Persistent inflation likely to threaten Indian Food Security 

News: Recently, food Inflation has become a global phenomenon, with several countries going through spells of high inflation. Those afflicted include major developed countries such as US, UK and parts of Europe, and the developing countries such as India, Brazil, and Mexico. 

What is the situation wrt inflation? 

The Wholesale price index (WPI) has been in double digits for a year. It shows a trend of rising inflation in food items. For example, oilseeds, cereals, wheat, maize and barley have been witnessing double-digit inflation.  

The Food and Agriculture Organization’s (FAO) food price index is at the highest level since the series began in 1990.  

What is the likely impact of high food prices? 

A sustained spell of inflation is likely to dampen growth efforts. It is likely to cause hardship for most of the population already suffering from a sharp slowdown.  

It may lead to more job losses, decline in incomes and wages.

In addition, the inflation may threaten food security in the country. 

Why is India’s retail food inflation much lower than farm-gate inflation or food inflation at wholesale level? 

Fortunately, high wholesale food inflation (WPI) has not been translated to the consumer price index (CPI) showing retail inflation. Recently, the retail inflation was around 7%. The reason is: 

(1) Since the covid pandemic struck India. The government’s intervention has been timely undertaken. For example, the government has launched the Prime Minister Garib Kalyan Anna Yojana (PMGKAY) which provides staple cereals, pulses and edible oil to protect the poor and vulnerable. It has also helped keep food prices low. 

What are the factors that are likely to worsen the present spell of rising prices in the coming future? 

Geopolitical crisis like the Ukraine war – Presently, this has led to supply shocks across the world  

IRising oil prices. This has led to a surge in global demand for biofuels, which can be derived from cereals like maize. The biofuels will act as substitutes for petroleum products.  

There have been supply shocks caused by adverse weather conditions in some cereal producing countries.  

Another factor that is likely to put upward pressure on food prices is the rising cost of inputs, particularly of energy and fertilizers. Both of these are linked to hydrocarbon costs.  

In India, matters are going to get complicated due to the domestic supply situation. The production is likely to be lower-than-expected in the rabi season. There have been extreme weather events.  

The stocks in our central pool have depleted. There is likely to be less state procurement. The private traders and food processing companies have increased their purchases. 

Way Forward 

The country needs to maintain sufficient stocks to be able to contain consumer prices through open market sales.  

There is a requirement to expand the PDS system. The government should keep it longer than planned. At the same time, expand the basic basket of PDS by offering pulses and edible oil again. 

The best way to stop our economy from slipping into stagflation would be to revive all-India demand. This can be done by shielding the real purchasing power of people at large. 

Source: The post is based on an article “Persistent inflation likely to threaten Indian Food Security” published in the Live Mint on 22nd April 2022.