Rajendra Jadhav
(Reuters) – India’s food inflation has remained around 8% since November 2023, driven by supply-side factors such as bad weather affecting crops, and is unlikely to ease soon despite the early arrival of monsoon rains and rains Above-normal forecasts.
Rising food prices, which account for nearly half of the total consumer price basket, have kept overall inflation above the central bank’s 4% target, preventing it from cutting interest rates.
What causes food inflation to rise?
Last year’s drought and ongoing heatwave significantly reduced the availability of foods such as beans, vegetables and grains.
Restricting food exports and lowering import tariffs will have little effect.
While summer vegetable availability is generally reduced, this year the decline is even more pronounced. Temperatures soared 4-9 degrees Celsius above normal in nearly half of the country, damaging harvested and stored vegetables and hampering the cultivation of crops such as onions, tomatoes, eggplants and spinach.
Farmers usually prepare vegetable seedlings before the monsoon rains from June to September and then transplant them to the main fields. But this year, high temperatures and lack of water have disrupted seedling and replanting operations, further exacerbating vegetable shortages.
Why didn’t the monsoon help?
The annual monsoon, on which India’s agricultural output depends, arrived early in the country’s southern tip and advanced rapidly, covering the western state of Maharashtra ahead of schedule. However, this initial momentum soon waned, resulting in an 18% deficit in rainfall so far this season.
In addition to triggering heat waves, the weakening monsoon has also delayed the sowing of summer crops, which can only proceed smoothly if there is sufficient rainfall.
Despite sporadic rainfall in June, the India Meteorological Department has forecast above-average rainfall for the remainder of the monsoon season.
When will the price drop?
If the monsoon resumes as per normal schedule and covers the country, vegetable prices are expected to fall from August onwards. However, flooding in July and August or prolonged drought may disrupt the production cycle.
Prices for milk, grains and beans are unlikely to fall anytime soon due to tight supplies. Wheat supplies are dwindling and the government has announced no plans to import grain, which will further increase wheat prices.
Rice prices are likely to rise as the government on Wednesday raised the minimum support price or purchase price of rice by 5.4%. The supply of pulses such as pigeon pea, black horse pea and chickpea was severely affected by last year’s drought and will not improve until the new season crop is harvested.
Sugar prices are likely to remain high as production is expected to fall next season due to reduced acreage.
Can government intervention help?
Yes, government interventions such as export restrictions and import easing can help lower the prices of certain foods. However, there is little the government can do to control the price of vegetables that are highly perishable and difficult to import.
The government has taken various measures to reduce food prices by restricting exports of sugar, rice, onions and wheat. However, these measures were unpopular with farmers and led to the defeat of the ruling Bharatiya Janata Party in general elections in rural areas.
The state elections in Maharashtra and Haryana are coming soon and the results will be decided by farmers in large numbers. The central government has been trying to win back support from farmers and may allow prices for some crops to rise rather than take drastic measures ahead of elections due in October.
