Increased sowing for summer may cool food inflation

Increased sowing for summer may cool food inflation

New Delhi: Inflation is expected to ease towards the end of the year, with the sowing of kharif crops up 3% over last year, say economists.

Owing to attractive minimum support prices (MSP), the area under rice cultivation has increased 12% to 34.9 million hectares this year, government data shows.

Area under cultivation of oilseeds has increased by 4% over last year, of sugarcane by 5% and of cotton by 10%. But with rains a little below normal, cultivation of pulses has declined by 11% and of coarse cereals by 7%.

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“Overall, it is good news. The prospect of broad-based inflation is not there," said Abheek Barua, chief economist at HDFC Bank Ltd. “Pulses and coarse cereals can be a stress point, but apart from that, there should be moderation in food inflation."

Food inflation has been in double digits or just below through the greater part of the year on the back of high global prices, changing consumption patterns and domestic supply bottlenecks. In the week ended 13 August, food inflation was at 9.8%, higher than 9.03% in the previous week, pressured by high prices of fruits, vegetables and dairy products.

“In November, primary articles could be around 8.66% and by December it could show 5%-5.5%," said Indranil Pan, chief economist at Kotak Mahindra Bank. “Primary articles on the whole are looking at a softer bias. Plus, last December there was a big upswing, so there would be a high base effect in the upcoming December." Pan, however, said food inflation could increase at the end of this fiscal year, just before the rabi crop harvest.

Economists said dairy products are seen as being stubbornly high as they rarely reverse gains, though fruits and vegetables prices could ease with the onset of winter.

Cereal prices are unlikely to fall much as they will be supported by the higher-on-year MSPs, the minimum price the government guarantees to producers who supply it.

“Food inflation will be 7-8% by the end of the year and overall inflation would also stay in the same range by March," said Madan Sabnavis, chief economist at CARE Ratings. HDFC Bank’s Barua forecast headline inflation to be around 9.1% in November, 8.1% in December and a little over 7% in March.

With more farmers preferring to grow rice, there was an imbalance in the produce as insufficient production of pulses and oilseeds made India dependent on imports.

“Farmers are preferring to cultivate rice also because its cost of production is lower. But there are concerns as it needs a lot of water and that is lowering the water table," CARE’s Sabnavis said.

Agriculture’s contribution to the gross domestic produce (GDP) at the end of this fiscal will be close to 2%, said Dhananjay Sinha, economist and strategist at Centrum Broking.

“I would expect it to come down owing to the higher base of last year, though there may not be much supply constraints overall," Sinha said.

Graphics by Ahmed Raza Khan/Mint