There has been a shortage of positive economic news in recent months.
The steep decline in food inflation offers some relief. The government said on Thursday the food prices were growing at their slowest rate in four years, at 1.81% in the week ended 10 December, led by a softening in vegetable, wheat, onions and potatoes. Lentil prices continue to grow strongly, however.
Customers rummage through heaps of vegetables at a market in Amritsar. AP
Food prices have a weight of 14.34% in the wholesale price index. The recent decline in food inflation will undoubtedly help pull down the headline inflation rate, especially since core inflation is also softening. There are still two concerns. First, the steep decline in the rupee will raise the landed cost of fuel. Second, inflation will continue to be above comfort levels even as it slips from its recent highs.
The decline in food prices have been helped by a good monsoon and a strong base effect. But both these factors were there in 2010 as well, yet food inflation continued to roar ahead till recently. Economists and policy makers have also said that there is a structural component to food inflation in India, as people eat better (especially proteins) because of higher incomes.
So it remains to be seen whether the battle against high food inflation has indeed been won. The bigger concern is the impact the proposed food subsidy legislation, which will offer cheap food to two out of three Indians, will have on food prices. There are high chances that the government will have to increase minimum support prices in the years ahead to incentivize farmers to produce enough food and then sell it to government agencies.
These are genuine concerns, but the steep decline in food inflation will for now offer some relief to an embattled government and, more importantly, harried consumers.
Source : CSO
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