Are high food prices good news or bad news? Well, it depends on whom you ask. A farmer is likely to be happy with the way they boost his earnings. A net buyer of food—be it an urban professional or a rural wage labourer—is less likely to welcome high prices of cereals, fruit and vegetables.
Whom should the policymaker listen to?
The latest inflation data shows that prices rose at an annual rate of 5.92% in the first week of March. The sudden jump in overall inflation this year can unsettle the economy. Food prices have led the way. So is the case in the rest of the world.
The Indian government is likely to cut import duties on some types of farm produce to keep a lid on food inflation. That’s fine. But it should not walk down the path that some countries have paved—price controls on food. Russia and China are among the countries that have tried to control the price of food through administrative fiat.
These price controls are not only unfair to farmers, but also a disincentive for them to produce more.
The decision will be more political than economic. Who has greater shouting power in the run-up to the elections: net buyers of food or net sellers of food? The urban middle class has a greater influence in national debates, while farmers tend to vote more regularly during elections. To the extent that higher food prices push up wages and eat into profits, the corporate sector, too, may step into the battle. It’ll be interesting to see towards which side political parties sway on this issue.
The group that is likely to be the worst hit by rapidly rising food prices is the poorest of the poor—farm workers. They spend most of their money to buy food and higher prices of food could hurt them badly. That’ll be a humanitarian setback as well as a political challenge. Spending on food subsidies is likely to shoot up in the near term.
The long-term solution is the rejuvenation of Indian agriculture, through better farming practices, public investment in irrigation and rural roads and fewer controls on the foodgrain trade. Till then, food inflation will continue to be an issue that sits uneasily on the cusp of politics and economics.
How should the government respond to higher food prices? Write to us at firstname.lastname@example.org