Food inflation in India, driven by supply-side factors such as adverse weather affecting crops, has remained around 8% year-on-year since November 2023 and is unlikely to ease soon, despite the early arrival of monsoon rains and forecasts of higher than normal rainfall.
Rising food prices, which account for nearly half of the overall basket of consumer prices, have kept overall inflation above the central bank’s target of 4%, preventing it from cutting interest rates.
WHAT IS CAUSING FOOD INFLATION TO INCREASE?
Last year’s drought and the ongoing heat wave have significantly reduced supplies of foods such as legumes, vegetables and cereals.
Restrictions on food exports and reductions in tariffs on imports have had little effect.
While vegetable supplies typically decline during the summer months, this year the decline is much more pronounced. Temperatures in nearly half the country are rising 4 to 9 degrees Celsius above normal, ruining harvested and stored vegetables and hampering the planting of crops such as onions, tomatoes, eggplants and spinach.
Farmers usually prepare vegetable seedlings before the June-September monsoon rains and transplant them into main fields later. However, this year, excessive heat and water shortages have disrupted both planting and transplanting, further exacerbating the vegetable shortage.
WHY DIDN’T THE MONSOON HELP?
The annual monsoon, on which India’s agricultural production depends, arrived early in the southern part of the country and advanced quickly to cover the western state of Maharashtra ahead of schedule. However, this initial momentum soon faded, resulting in a rainfall deficit of 18% so far this season.
In addition to triggering the heat wave, the weakened monsoon has delayed the planting of summer crops, which can proceed in full swing only with sufficient rainfall.
Despite spotty rains in June, the India Meteorological Office has forecast above-average rainfall for the rest of the monsoon season.
WHEN WILL PRICES GO DOWN?
Vegetable prices are expected to fall from August onwards if the monsoon recovers and covers the entire country as per usual schedule. However, floods or a prolonged drought in July and August could interrupt the production cycle.
Prices of milk, cereals and pulses are unlikely to fall soon due to tight supplies. Wheat supplies are dwindling and the Government has announced that it has no plans to import wheat, which will allow wheat prices to rise further.
Rice prices could rise as the Government raised the minimum support price, or purchase price, of paddy rice by 5.4% on Wednesday. Supplies of legumes, such as peas, black mate and chickpeas, were badly affected by last year’s drought and will not improve until the new season’s harvest.
Sugar prices will likely remain high as next season’s production is expected to decline due to less planting.
CAN GOVERNMENT INTERVENTION HELP?
Yes, government interventions, such as limiting exports and easing imports, can help bring down the prices of some food commodities. However, the Government can do little when it comes to the prices of vegetables, which are highly perishable and difficult to import.
The Government has implemented several measures to lower food prices, limiting exports of sugar, rice, onions and wheat. However, these measures proved unpopular among farmers and led to losses in the general elections for the ruling Bharatiya Janata Party in rural areas.
State elections are approaching in Maharashtra and Haryana, where a significant population of farmers will decide the outcome. The central government is trying to win back farmers’ support and may allow prices of some crops to rise instead of taking aggressive measures ahead of elections, due in October.
