FOOD INFLATION IN INDIAN ECONOMY

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1 FOOD INFLATION IN INDIAN ECONOMY KANCHAN Assistant. Professor, Department of Economics, S.G.G.S. Khalsa College, Mahilpur Punjab. ABSTRACT India is experiencing high rate of economic growth in the last two decades but the growth has been coupled with high rate of food price inflation. The growth has been uneven across sectors with agriculture remaining backward. The increase in per capita income has significantly increased the demand for food but agricultural production has failed to keep pace with the growing demand. The theoretical explanations and time series analysis establish that increase in per capita income and shortage in supply responsible for price rise. There is no long run relationship between money supply and agricultural price. Increasing public expenditure and unfavorable foreign exchange rate have some effects on price although the results are not robust. Keywords: Food inflation, Trends and measures, Tables. INTRODUCTION: Inflation by creating forced saving can be significant source of capital formation. if used properly and skillfully, it is positive means of promoting economic development. If the pace of inflation is moderate, there is a fair chance of some forced savings being imposed on the community through the lag of wages and salaries and through the shift of income distribution in favor of the wealthy. Inflation is defined as a sustained increase in the general level of prices for goods and services. It is measured as an annual percentage increase. As inflation rises, every rupee you own buys a smaller percentage of a good or service. Food inflation is the rise in prices of food items. It is calculated on the basis of the WPI (Wholesale Price Index). It is calculated by the CENTRAL STATISTICAL ORGANISATION (CSO). Though the rate of food inflation in SEP 2014 was 9.16%.Food inflation has even touched double digits in late 2013 i.e %. In short, the only possible contribution to growth derives from the forced saving mechanism, through which the decline in real wages due to saving prices and the wage lag would increase investable profits. Thus, forced saving can become a source of additional capital formation as it reduces the physical consumption of the community. OBJECTIVES OF STUDYING FOOD INFLATION HERE ARE GIVEN AS FOLLOWS To find out the major causes of food inflation. To address the problem of inefficient supply chain management in the agricultural sector. To show trends of food inflation in India. To understand the impact of food inflation on Indian economy. To show the shift in composition of determinants of food inflation over time. FOOD INFLATION IN INDIA Food Inflation in India has remained a stubborn in recent years. According to Arundhati Bhattacharya, Chairman of SBI FOOD INFLATION HAS BEEN THE MAIN PROBLEM. Cost of food in India increased 6.40% in December of 2015 over the same month in the previous year. Food inflation in India averaged 8.76% from 2012 until 2015 reaching an all time high of 14.72% in November 2013 and a record low of 2.15% in July of Food inflation in India is reported by the Ministry of Statistics 20

2 and Programme Implementation (MOSPI), India. Indian food inflation in the year 2015 can be shown through a figure: Source: - (MOSPI, INDIA) Composition of Food Inflation: -Food inflation is composed of two segments: Food articles and Food products. Food articles are fresh and raw (largely unprocessed e.g. cereals, pulses, oilseeds, fruits and vegetables, milk, eggs, meat, fish etc. ) and Food products which are processed ( like edible oils, sugar, processed foods etc).the rate of inflation has been generally higher in food articles than in food products. This has important implications for developing food processing industry to contain food inflation. It can be viewed. 21

3 CONTRIBUTORS TO FOOD INFLATION FRUITS&VEGETABLES EGGS,MEAT&FISH PULSES,SUGAR AND EDIBLE OILS CEREALS MILK OTHER FOOD AVERAGE OF THREE YEARS The comparison of food with other commodities in India can be understood with the help of a table and a chart as shown followed:- Table No 1. (Year-on-year: WPI) ALL 5, , , , COMMODITIES FOOD 10, , , , Source:-The Equicom Table1 shows the wholesale price index (WPI) of food and all other commodities. It is clearly shown that the WPI of both food and all commodities was highest in and food s WPI is more than all commodities which shows inflation rate is mostly common in foods in India. 22

4 Now we will look at the spending pattern of India through a pie chart: In a country which has the largest mass of poor and malnourished people in the world and where an average household still spends about 45% of its expenditure on food inflation simply speaks of bad macroeconomic management. CAUSES OF FOOD INFLATION Following are the main reasons of food inflation in India: Trade-intermediaries who operate in groups encourage hoarding to keep the prices high. Improper supply chain and needs to be managed for a regular supply. Recent fuel price increase has pressurized the common man to by household things. Increasing the minimum export price (MEP) would help in lowering down the price of onion. Rise in production cost and labour cost. Export of food products. Speculation. High Transportation. Hoarding of food products. Exploitation of land. Raise in marginal support prices. Population and climate changes. Ignorance and lack of technology in agriculture sector. Diversification of diet towards high value foods. IMPACT OF FOOD INFLATION 23

5 Large section of the population is losing out on their purchasing power due to food inflation. High food inflation will bring down the growth of a country. Food inflation results in corruption in PDS shops. It forces the common man to borrow money from banks and other financial institutions. The country might face the problem of starvation if food inflation persists for long time. Poverty will be exaggerated as a result of food inflation. SUGGESTIONS AND MEASURES TO CONTROL INFLATION Monetary measures: Monetary measures aim at reducing money incomes Credit Control: One of the important monetary measures is monetary policy. The central bank of the country adopts a number of methods to control the quantity and quality of credit. For this purpose it raises the bank rates, sells securities in the open market, and raises the reserve ratio. Demonetization of currency: however one of the monetary measures in to demonetize currency of higher demonetise.such a measure is usually adopted when there is as abundance of black money in the country. Fiscal Measures: Reduction in Unnecessary Expenditure: The government should reduce unnecessary expenditure on non-development activity in order to curb inflation.this will also put a check on private expenditure which is dependent on government demand for goods and services. Increase in taxes: To cut personal consumption expenditure, the rates of personal corporate and commodity taxes should be raised and even new taxes should be levied but the rates of taxes should not be as high as to discourage saving, investment and production. Buy in bulk and store products whose prices are likely to go up. Consumers should take advantage of attractive offers at discount chains. Discretionary consumption should be reduced. Do comparison shopping. Control your consumption of high priced items. Use substitutes and postpone consumption of certain items. Downgrade if your favorite brand is a premium one and the category does not have much differentiation. CONCLUSION Central banks with inflations goals have generally used a single measure of inflation as there official target. A unique reference has been seen as monitor and fiscal policies approach because of its simplicity. The paper found support for a multiple indicator approach in two types of analysis. First in a theoretical model with sticky and flexible price sectors, optimal policy needed to consider inflation in only one price measure. Because India is a food deficient country. Under this circumstance the survival of common man is becoming tougher and tougher. In order to keep pace with population growth, food production also needs to grow. It is very important for the government to control the inflation and ensure 24

6 that these circumstances do not arise again in the future. The passing of food security act will help to a great extend. So let s join our hands together for a happy nation. REFERENCES Aoki, K, 2001,Optimal Monetary Policy Responses to Relative Price Changes, Journal of Monetary Economics 48, Chand, Ramesh, Understanding the Nature and Causes of Food Inflation. Economic and Political weekly,45(9); Edward Shapirs, Macro Economic Analysis. G.M Meier, Leading Issues in Economic Development. Ragnar Nurkse, Problems of Capital Formation in Underdeveloped Countries. 25