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22 June 2016 K2_CATEGORY IAS Blog

Intoducation The article analyses the current situation of rising food inflation and the measures needed to address this.

    • The sudden spurt in food inflation is attributed to vegetable prices, followed by pulses and sugar.
    • The solution primarily lies in the non-monetary policy space, and other government measures. The finance minister in his Budget speech said that “Monitoring of prices of essential commodities is a key element of good governance”.
    • Steps taken by the government to tackle inflation:
      • Government has approved creation of buffer stock of pulses through procurement at Minimum Support Price and at market price through Price Stabilization Fund.
      • This Fund has been provided with a corpus of R900 crore to support market interventions. (However, there is no clarity whether the price stabilisation fund (PSF) will be utilised and, if so, how?).
      • The high level Inter-Ministerial Meeting to contain food inflation happened a few days back, only ex-post to the spiraling of food inflation.

Reason for increase in prices:

      • Changing cropping patterns is one of the prime reason. India should grow more pulses than sugarcane.
      • Rising rural wages due to MNREGA-infused liquidity into the system, which led to people demanding higher produce and turning their food budget more towards pulses.
      • On the supply-side, weather-related variables—particularly unseasonal rain—too are blamed for unanticipated food inflation.
      • The role of speculation and Minimum Support Price in triggering the inflation are also debated.

Short term and long term measures to address this problem:

      • The short-term measures should involve increasing supply of food items to meet the demand.
      • The long-term measures require improvement in infrastructure to preserve perishable items like fruits and vegetables.
      • A network of road infrastructure for better market-access and warehousing facilities.
      • We need a national strategy for both public investment in agricultural infrastructure and attracting private investment.

Question: Persistence of high food inflation can harden the monetary policy stance and make fiscal choices difficult. Should India look up to the monsoon, the central bank or the government to find a solution to soaring prices?

Suggested approach

      1. The reasons of rising prices.
      2. The impact of good monsoon over prices.
      3. The impact of monetary policy, if any, over food prices.
      4. The impact of government policies.
      5. In brief write long term measures to tackle it.


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