High inflation a threat to Indian food security
3 min read 21 Apr 2022, 09:57 PM ISTAn extension of India’s free-food scheme could prove insufficient to safeguard vulnerable multitudes
PremiumInflation numbers released last week confirmed the worst fears about the state of India’s economy. At a time when our economic recovery remains fragile, a sustained spell of inflation is likely to dampen growth efforts, but is even more likely to cause hardship for most of the population already suffering from a sharp slowdown. With increasing job losses and declining incomes and wages, inflation may threaten food security in the country.
Wholesale price index (WPI) based inflation has now been in double digits for a year. The index also shows a trend of rising inflation in food items. While oilseeds have already been witnessing inflation of more than 20% for over a year now, even cereals are now seeing inflation, with wheat inflation beyond 10% for the last five months. Maize and barley have seen inflation at 25% and have remained very high for more than six months now. Clearly, this inflation seen in several food items, including essentials, is not transitory. It follows a pattern of sustained price escalation. Some of this is obvious, given the trends in international markets, with the Food and Agriculture Organization’s (FAO) food price index at the highest level since the series began in 1990. With predictions of cereal and edible oil prices rising even further, there does not appear to be any respite from raging inflation anytime soon.
Fortunately, high wholesale food inflation is still somewhat muted in retail inflation based on the consumer price index (CPI). Retail inflation was almost 7% last month, with its food component at 7.7%. Both have overshot their acceptable price range, but rising food inflation is the big worry for most Indians. Part of the reason why retail food inflation is much lower than farm-gate inflation is the government’s timely intervention after the covid pandemic struck. The Prime Minister Garib Kalyan Anna Yojana (PMGKAY), which provided 5kg of free cereals to eligible beneficiaries of India’s Public Distribution System (PDS), has not only helped distressed households, it has also helped keep consumer inflation low, particularly food prices. The scheme was extended beyond staple cereals to cover pulses and edible oil as well, both of which have seen prices soar, to protect the poor and vulnerable. The PMGKAY will run until September.
However, the challenge of persistent inflation is likely to make things worse despite that. Much of the PMGKAY relief has been in a period when inflation was benign. The present spell of rising prices is likely to intensify and strengthen, given how it is driven by a geopolitical crisis and rising oil prices. Part of the food-price increase is due to a surge in global demand for biofuels, which can be derived from cereals like maize, as substitutes for petroleum products. Demand is also likely to remain elevated because of supply shocks caused by adverse weather conditions in some cereal producing countries, apart from disruptions arising from the war in Ukraine. The third factor that is likely to put upward pressure on food prices is the rising cost of inputs, particularly of energy and fertilizers, both linked to hydrocarbon costs. Today’s price upshoots are a global phenomenon, with several countries going through spells of high inflation. Those afflicted include major developed countries such as US, UK and parts of Europe, but also developing countries such as Brazil and Mexico.
What complicates matters for India is the domestic supply situation, which is likely to be constrained by lower-than-expected production in the rabi season as a result of extreme weather events. There are already indications that the present rabi wheat crop is likely to be 10-15% lower than projections.
With depleted stocks in our central pool and likely less state procurement because of higher purchases by private traders and food processing companies, the country needs to maintain sufficient stocks to be able to contain consumer prices through open market sales. But stocks will also be required to expand the PDS system and keep it going for longer than planned. At the same time, we need to expand its basic basket by offering pulses and edible oil again, even as its coverage is widened wherever needed.
Another worry would be the onset of wage-price spiral, as seen earlier in India during the 2008-13 period, when the cost of cultivation rose and squeezed farm profits. The challenge of providing food security is about to get stiffer, given current price trends. Meeting it is also essential for overall demand to recover in the face of an income squeeze. The best way to stop our economy from slipping into stagflation would be to revive all-India demand by shielding the real purchasing power of people at large.
Himanshu is associate professor at Jawaharlal Nehru University and visiting fellow at the Centre de Sciences Humaines, New Delhi
