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Tackling Food Inflation

GS Paper 3

 Syllabus: Indian Economy/ Agriculture

 

Source: ICRIER

 Context: An ICRIER paper, “Tackling Food Inflation: Is restricting exports and imposing stocking limits the optimal policy?” discusses the causes of high food inflation in India, and government actions, and suggests alternative solutions.

 

Current status of India’s Food Inflation:

India’s retail inflation in August 2023 is at 6.83%, exceeding the desired ceiling of 6%. Food and beverages contribute significantly, making up 57% of retail inflation. Food inflation has risen sharply to 9.94%, impacting overall retail inflation.

 

Government initiatives to contain inflation:

Government Actions Date Details
Wheat Export Ban May 2022 Prohibited wheat exports to control prices.
Rice Export Restrictions September 2022 Halted exports of broken rice.
July 2023 Imposed export ban on non-basmati white rice.
Stocking Limits June 2023 Introduced stocking limits for wheat traders and millers.
Rice Export Duties July 2023 Imposed 20% export duty on parboiled rice.
August 2023 Set a Minimum Export Price of $1,200 per tonne for basmati rice.
Export Duty on Onion August 2023 Imposed a substantial 40% export duty on onions.

Export ban impacts:

  • Wheat Inflation Surge: After the May 2022 wheat export ban, inflation rose from about 9% to about 25% by February 2023.
  • Market Uncertainty: Sudden bans caused market unpredictability, affecting traders and consumers.
  • Rice Inflation Stagnation: Non-basmati rice export ban in July 2023 had a limited impact on 13% inflation, reducing it slightly to 12.5%.
  • Consumer Panic: Non-basmati rice ban alarmed local and diaspora consumers.
  • Implications for Farmers: Farmers faced the consequences of rapid government measures.
  • Indicates a bias in favour of urban consumers and hurts farmer’s earnings
  • Impacts global food security, as it has hit the African countries most.

 

Recommendations by the ICRIER paper for containing food Inflation:

Timeframe Policy Recommendations
Short-Term Efficiently calibrate trade policy instead of protectionism.
Reduce import duties on edible oils and wheat. Import prices should ideally not be lower than MSP to ensure that farmers at least get the minimum price.
Build buffer stocks for volatile vegetable staples (TOP).
Expand cold storage infrastructure and use solar energy for storage.
Promote processing of at least 10% of fresh produce.
Support Farmer Producer Organisations (FPOs) and farmer cooperatives.
Invest in R&D to enhance productivity and climate-resilient farming practices.
Increase irrigation coverage through micro-irrigation infrastructure.

 

Medium-Term Reform marketing and trade policies to benefit both consumers and farmers.
Boost the processing sector, especially for fresh produce.
Use schemes like “Operation Greens” to support FPOs and processing facilities.
Long-Term Increase investments in R&D for innovative farming practices.
Develop drought-resistant seed varieties and adaptive farming methods.
Expand irrigation coverage with micro-irrigation for climate resilience.
Revamp the policy matrix to align with climate change challenges.

 

About ICRIER:

Established in August 1981, ICRIER (Indian Council for Research on International Economic Relations) is an autonomous, policy-oriented, not-for-profit, economic policy think tank.

 

Insta Links 

 

Mains links:

Inflation further exacerbates inequalities and affects the poor the most. Discuss the policy measures that are needed to ensure that inequalities do not deepen amidst rising inflation. (10M)

Distinguish between demand-pull and cost-push inflation. Examine the factors that are causing inflation in India. What measures are needed to keep inflation under check? (10M)

 

Practice Questions:

In India, which one of the following is responsible for maintaining price stability by controlling inflation? (UPSC CSE 2022)

  1. Department of Consumer Affairs
  2. Expenditure Management Commission
  3. Financial Stability and Development Council
  4. Reserve Bank of India

 

Answer: D

 

With reference to the Indian economy, demand-pull inflation can be caused/increased by which of the following?

  1. Expansionary policies
  2. Fiscal stimulus
  3. Inflation-indexing wages
  4. Higher – purchasing power
  5. Rising interest rates

 

Select the correct answer using the codes given below.

  • 1, 2 and 4 Only
  • 3, 4 and 5 Only
  • 1, 2, 3 and 5 Only
  • 1, 2, 3, 4 and 5

 

Answer: A