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Business News/ Opinion / Views/  Protect rural incomes to tackle the current food security threat
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Protect rural incomes to tackle the current food security threat

We require public spending to generate demand in India’s economy and boost non-farm incomes

Signs abound of prices of food items such as foodgrains staying elevated for now, and this poses a challenge for the government in protecting the less fortunate from the brunt of high inflation.Premium
Signs abound of prices of food items such as foodgrains staying elevated for now, and this poses a challenge for the government in protecting the less fortunate from the brunt of high inflation.

Retail inflation data released by the National Statistical Office this week shows a moderate rise in inflation to 4.81% in June from 4.3% last month. Despite this increase, the rate is within India’s tolerance band. But it is food inflation that is worrying, having climbed to 4.49% from 2.96%. This is a big challenge for the government.

A deep-dive into consumer price index (CPI) data shows that its foodgrain group contributed the most to the rise in food inflation. Overall cereal inflation is at 13%, with both rice and wheat posting 12% inflation. Arhar (tur), the dominant pulse item, shows inflation of 27% with a clear rising trend over the months. While there has been an uproar lately over vegetable inflation, the June CPI data has a negative 0.9% reading; so recent price increases are likely to show in July data. But the real worry is the rise in foodgrain inflation, with price pressures building up for both cereals and pulses.

Inflation in wheat has been in double digits for more than a year now. Though the government’s estimate of 112.7 million tonnes suggests wheat production this year will be satisfactory, market estimates indicate that the figure will be much lower. The government being able to procure only 26 million tonnes of wheat as against a target of 34 million tonnes gives credence to market signals. That wheat prices remained high despite massive open market operations by the government before the procurement season also confirms the fear that wheat supply may not be as high as projected. As a result of low procurement this year and the last, wheat stocks are barely sufficient to meet the needs of the Public Distribution System (PDS) and thus leaves little scope for further market intervention.

The situation in rice is no better. While the government holds sufficient stocks, uncertainty over the monsoon season weighs heavily. So far, overall rainfall this season has been above normal. But it is the regional spread of the monsoon that should worry the government. The above-normal monsoon is largely a result of 62% excess rainfall in north-west India. In the rest of the country, there is a deficit—23% in the southern peninsula and 19% in the eastern region. Given that large parts of north-western India are anyway irrigated, this region does not suffer from a deficient monsoon. But the excess rainfall and the resultant floods may affect rice crops. As against this, a large part of east and peninsular India is pre-dominantly rice producing and also rain-fed. It is here that the impact of deficient rains may result in lower output in the kharif season. As on 10 July, rice sowing was already lower by 13% compared to last year. While this deficit is likely to reduce, a deficient monsoon can affect yields. The situation with pulses, mainly arhar, is no better. The sowing this year is lower by almost 10%. Even oilseeds sowing is down more than 10%, with soybean sowing falling 14%.

While the weather poses problems, inflationary pressures in foodgrains seem likely to remain elevated. The challenge for the government is to insulate Indian consumers, particularly those at the bottom end of the income distribution, from high inflation.

Inflation in foodgrain is likely to spill over to other food items such as milk due to a rise in the cost of fodder. Inflation in milk remains high at 9% in June. Given their disproportionately large weight in the consumption basket, demand for other commodities will get squeezed.

But lower output due to floods and deficient monsoon rains also means that the government has to be proactive in protecting the income of farmers. There is enough evidence to show that the distress in rural parts of the country continues to be a challenge. While wages are stagnant in real terms, even employment data points to a decline in income from other sources. Fortunately, government stocks are sufficient to meet the requirements of the PDS, but not enough for the government to undertake open market operations to pull down market prices.

Food security interventions through the PDS will certainly help cushion the blow. But there is also a need for a broader strategy to protect the rural economy from the negative consequences of inflation and declining agricultural incomes. This will require the government to step up public spending to generate demand in the economy, raise incomes and create non-farm employment. Food security is not just about providing foodgrains, but also about raising incomes of the poor so that they may benefit from a diversified and nutritious consumption basket.

Himanshu is associate professor at Jawaharlal Nehru University and visiting fellow at the Centre de Sciences Humaines, New Delhi

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Published: 13 Jul 2023, 08:11 PM IST
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