How to tackle food inflation – and how not to

Inflation targeting

• RBI team must be complimented for raising the repo rate by 40 basis points (bps) and (CRR by 50 bps with a view to tame inflation.
• High inflation is always an implicit tax on the poor and those who keep their savings in banks. Real value of their savings gets depreciated with every round of inflation as interest on deposits is often far below the inflation rate.
• So, controlling inflation is an important mandate of the RBI.

Will increases in the repo rate and CRR control food inflation?

• The short answer is, “not yet”.
• RBI has been behind the curve by at least by 4-to 5 months, and its optimism in controlling inflation in the earlier meetings of the Monetary Policy Committee was somewhat misplaced
• Food prices globally are rising as per the FAO’s food price index.
• The disruptions caused by pandemic and now the Russia-Ukraine war are major reasons.
• India cannot remain unaffected from this phenomenon.
• While on the one hand, it has opened opportunities for Indian farm exports, on the other hand, it has posed challenges as import prices of edible oils and fertilisers surge.

Export apprehensions

• Cereal exports have already crossed a record high of 31 million metric tonnes (MMT) at $13 billion (FY22), and the same may be repeated this fiscal (FY23).
• Among cereals, wheat exports have witnessed high growth of more than 273 per cent.
• Commerce and Industry Minister is upbeat on agri-farm exports, which overall have crossed $50 billion for the first time in FY22.
• Many fear whether India can export 10 to 15 MMT due to scaling down of production estimate of the current crop due to the heatwave, and massive drop in procurement in the ongoing season due to higher market rates compared to MSP.
• However, there is very little talk about rice exports, which have crossed 20 MMT in FY22 in a global market of 50 MMT.
• That’s a much bigger than wheat.

Climate change and food security

• Some concerns on wheat front are genuine, and we need to realise that climate change is already knocking on our doors.
• With every one degree Celsius rise in temperatures, wheat yields are likely to suffer by about 5 MMT, as per earlier IPCC reports.
• This calls for massive investments in agri-R&D to find heat-resistant varieties of wheat and also create models for “climate-smart” agriculture.
• We are way ahead of the curve in distributing free food to 800 million Indians, with a food subsidy bill that is likely to cross Rs 2.8 lakh crore this fiscal.
• Government should rationalise the PDS and PMGKAY, targeting only those below the poverty line for free or subsidised food and charging a reasonable price from those who are above the poverty line.

Way forward

• In the wake of likely lower production and procurement of wheat this year, govt. has done well to substitute more rice in the PMGKAY, and may also do so in NFSA allocations.
• Option can be given to beneficiaries to receive cash in their Jan Dhan accounts (equivalent to MSP plus 20 per cent) in lieu of grains.
• This is permitted under NFSA and by doing so,govt. can save on food subsidy bill.
• Indian farmers need access to global markets to augment their incomes, and government must facilitate Indian farmers to develop more efficient export value chains by minimising marketing costs and investing in efficient logistics for exports.