Food inflation returns to haunt India
(The views expressed in this column are the author’s own and do not represent those of Reuters)
The rise in food inflation was a shocker. Prices jumped 18.3 percent giving the government and the RBI an uneasy feeling and the stock market a big disappointment. In spite of promises, it looks like headline inflation will not drop below 6 percent by March.
The return of food inflation was unexpected. Production and prices of cereals were steady and prices of pulses and sugar had actually come down. What kicked up the price index were the prices of vegetables, meat and eggs. These are only about 13 percent of the consumer basket.
But the price rise was too sharp and too sudden and in a matter of three weeks pushed up the food price index more than 6 percent. That will jack up headline inflation by more than one percent in December.
Inflation has affected most of the developing countries. In China, inflation is at 5.1 percent with food inflation running at 11.7 percent. In Russia, inflation is at 8 percent, in Indonesia at 7 percent and so on. There is a fall in world food production and international food prices have been aggressively moving up. What is unusual about India is that inflation which had receded, with food prices remaining nearly steady since June, suddenly spiked in December.
The reason is that the rains were unusually excessive and irregular and production either dropped or there was exposure to pests. The prices of onions shot up more than 46 percent in the first three weeks of December and 67 percent over the year. In contrast, demand for fruits and vegetables increased with the expansion in population and improvement in incomes of urban and rural consumers.
This mismatch between demand and supply is not temporary. Production of fruits and vegetables is in the unorganised sector and the cultivation follows conventional methods. It is time that the vegetable sector receives greater attention. It has to be better organised using modern technology. ICAR and a number of universities have developed transgenic varieties of crops which are herbicide-tolerant and insect-resistant.
There are also non-transgenic biotech approaches for enhancing conventional farming like marker-assisted selection, tissue culture, etc. which can make a tremendous difference to yield and quality. Some of these technologies are still on the shelf when they should have been commercially exploited by the farmers.
Apparently, there is neglect or resistance on the part of the government. Brinjal is a case in point. Although it had been scientifically tested and its safety well established by DBT, the ministry of environment delayed its implementation.
In future, the demand for fruits and vegetables will increase much faster than demand for cereals. Food inflation will persist if fruits and vegetable supply does not commensurately increase. Broadly, vegetable production will have to increase at more than 10 percent per year. The only way that growth can be achieved is by adopting new technologies which are the keys to larger production, higher farm incomes and stable prices.