Home/ News / India/  Rain shortage may dampen India’s battle against inflation - here’s why

India, by far the world's largest exporter of rice, has had a lack of rain in some areas. As a result, planting fields for rice have shrunk to their smallest size in almost three years. This could provide a new challenge for the world's food supply.

At a time when nations are struggling with skyrocketing food prices and rife inflation, India's ability to produce rice is in danger. Due to a shortage of rainfall in some areas, particularly West Bengal and Uttar Pradesh, which account for a quarter of India's output, the total area planted with rice has decreased by 13% thus far this season.

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With Bangladesh, China, Nepal, and certain Middle Eastern countries among its top clients, India exports rice to more than 100 countries. In the upcoming weeks, the US is expected to produce a bountiful harvest of wheat, and Ukraine has sent its first grain shipment since Russia's invasion.

Traders are concerned that a decline in rice production could make India's battle against inflation more difficult and lead to export restrictions. For the billions of people who depend on the food staple, such a decision will have significant ramifications. In order to protect food security and maintain local prices, the government has already restricted wheat and sugar exports from India, which accounts for 40% of the world's rice trade.

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Meanwhile, India's rice prices have increased, which reflects worries over production. Due to insufficient rain and increased demand from Bangladesh, prices of some types have jumped by more than 10% in the past two weeks in major growing states like West Bengal, Odisha, and Chhattisgarh, according to Mukesh Jain, a director of rice shipper Sponge Enterprises Pvt. According to him, free-on-board export pricing could increase to $400 per tonne by September from as much as $365 at the moment.

Asia produces and consumes the majority of the world's rice, making it essential for the region's political and economic stability. Rice prices have been moderated as a result of plentiful production and stockpiles, in contrast to the spike in wheat and corn prices following Russia's invasion of Ukraine, which has helped prevent a worsening of the food crisis.

The success of the monsoon and the Indian rice crop will have a significant impact. According to some agricultural specialists, there is still time to plant more crops and make up part of the gap. August through September are expected to have typical rainfall, which could increase crop production.

Farmers are less upbeat. Rajesh Kumar Singh, 54, a grower in Uttar Pradesh, said he planted rice on only half of his seven acres (2.8 hectares) of land due to a lack of rain in June and July. “The situation is really precarious," he said.

Rice prices are feeling the pressure, said Himanshu, a professor at Jawaharlal Nehru University, who goes by only one name. “Rarely any sowing happens after mid-July, so the hope that it will recover is unlikely to be the case," he said, adding that a drop in output is a risk to inflation.

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Rice may provide a new obstacle in India's fight against inflation. This year, consumer prices continued to exceed the Reserve Bank of India's tolerance level of 6 percent, which caused a dramatic increase in interest rates. As the impact of declining commodity prices, such as those for fuel and vegetable oils, is somewhat countered by a weakening rupee this week, the central bank may raise borrowing costs further.

If geographic disparities in rainfall persist, it could have a detrimental impact on crop production, negatively impacting economic growth and inflation, according to Sonal Varma, an economist at Nomura Holdings Inc.

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With India’s paddy output poised to decline in several states, the government should consider reviewing its policy of allocating rice for ethanol production, according to Siraj Hussain, a former secretary of India’s agriculture ministry.

India seeks to boost ethanol production using surplus sugar and rice as part of efforts to cut its fuel costs. Surging food prices following the war in Ukraine have increased the risk of hunger and sparked a “food versus fuel" debate.

“At this point of time, it is difficult to estimate the exact level of production loss," Hussain said. But at current prices, there’s hardly any justification in allocating rice for ethanol output, he added.

(With agency inputs)

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Updated: 04 Aug 2022, 08:21 AM IST
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