Amid floods and crop losses, govt promises price stability till mid-2026
Destroyed farmlands, decline in sowing. The recipe doesn't sound good for food prices, and consequently, inflation. But the Centre asserts food prices won't soar, going so much as to assure the central bank that it has the tools to act if needed. What explains the government's confidence?
Despite floods destroying farms and farmers sowing less, the government is confident that it can keep food prices under control, at least until July 2026.
At a meeting last week, the consumer affairs ministry assured the Reserve Bank of India (RBI) that food prices would remain stable through July 2026, two people familiar with the matter said. Officials told the RBI that the government was prepared to intervene if inflationary pressures emerged.
“The ministry is well-positioned to step in if prices show signs of spiking," said one of the people cited above, who requested anonymity, pointing to improved forecasting tools and sufficient buffer stocks as safeguards against volatility.
Flood fury
The assurance comes amid mounting concerns over inflation. Punjab is reeling from its worst floods in three decades, with more than 175,000 acres of farmland submerged, paddy crops destroyed and nearly 2,000 villages affected.
Sowing of tur (arhar) pulses this kharif season slipped slightly to 4.52 million hectares from 4.57 million hectares last year, while oilseed acreage fell by 523,000 hectares to 18.69 million hectares during the same period.
The ministry is also monitoring 38 essential food items through 555 reporting centres daily, enabling quick intervention when needed.
“This monitoring provides us real-time data, enabling timely interventions to stabilize prices, manage supply shocks, and ensure food security, reflecting India’s proactive approach to controlling inflation and protecting consumers," said the second person, who also didn’t want to be named.
“The idea is to spot disruptions early and act before they spiral into broader inflationary pressures," the person added.
Room for easy money policy
The ministry's assurance suggests that food inflation risks may remain contained until mid-2026, giving the RBI greater confidence in its inflation outlook and more room to calibrate monetary policy.
Improved forecasting and sufficient food stocks also signal stronger institutional readiness to intervene against supply shocks, bolstering policy credibility and offering markets greater predictability on price stability.
Last week, Santanu Sengupta, chief India economist at Goldman Sachs, told Mint that he expects the RBI to deliver one more rate cut this fiscal year, likely in December, citing benign inflation and easing food prices.
“While India’s food grain stocks remain adequate, localized crop losses and reduced sowing areas for pulses and oilseeds could create short-term price pressures," said Abhash Kumar, assistant professor of economics at Delhi University. “The government’s proactive procurement and monitoring will be key to containing inflation, but market vigilance remains essential," Kumar added.
Queries emailed to the consumer affairs ministry and the RBI remained unanswered.
Food and inflation
Food prices are a key driver of the Consumer Price Index (CPI), and even small fluctuations can significantly influence overall inflation trends.
Retail inflation rose in August for the first time since October 2024, led by higher prices of tomatoes, eggs, meat, and fish, according to the statistics ministry's provisional data.
CPI-based inflation climbed to 2.07% year-on-year from 1.61% in July, while food price deflation narrowed to 0.69% from –1.76%. However, tomato prices alone surged 16.9% in August, the first such increase in eight months.
Even so, inflation remains comfortably within the RBI’s 2–6% target band, leaving space for rate cuts.
Erratic weather
Still, erratic weather could complicate the outlook. India’s kharif sowing has covered 2.5% more area than last year, but weeks of torrential rainfall threaten to erode those gains, according to a recent report by SBI Research.
“The torrential rainfall in most of the north-west states (India's largest kharif crop producers) is a matter of worry and may impact food inflation. All-India rainfall between August and September (till 11/09) was nearly 8.7% above normal, with sharp excesses reported in Punjab (+109%), Haryana (+66%), Rajasthan (+47%), Gujarat (+29%), and Jammu & Kashmir (+78%). Southern states, too, were hit, with Andhra Pradesh recording 34% higher rainfall and Telangana 58%," the report said.
“Although no major impact on food inflation may be expected from this uneven distribution of rainfall yet, we still expect some uptick in food inflation going forward," it added.
- The government assures the RBI that food prices will remain stable.
- Despite floods and reduced sowing, the government expects food prices to stabilize.
- Proactive government measures will help contain food inflation until mid-2026.
- The government's confidence in stable food prices allows for potential rate cuts.
- Improved monitoring and sufficient buffer stocks are key to controlling inflation.
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