Are grain procurement shocks inflationary?
The government periodically intervenes in the foodgrain market to create a buffer stock to smoothen price volatility
Understanding monetary policy design in emerging markets is a growing area of research. One aspect missing in this literature is how distortions in the agriculture sector amplify the impact of a variety of shocks on output and inflation dynamics. In India, the combined agriculture sector (agriculture, forestry and fishing) comprises 17% of GDP, or gross domestic product (at constant 2013-14 prices). The employment share of the agriculture sector in India is also large: 47% in 2013-14. The government periodically intervenes in the agricultural sector, especially in the foodgrain market, by directly procuring grain from farmers to create a buffer grain stock to smoothen price volatility and for redistribution.
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