Explainer-Why food prices will remain high in India By Reuters

By Rajendra Jadhav

(Reuters) – India’s food inflation, driven by supply-side factors such as adverse weather affecting crops, has remained at around 8% year-on-year since November 2023 and is unlikely to ease soon, despite the early arrival of the monsoon rains. and above-normal rainfall forecasts.

Elevated food prices, which account for nearly half of the overall consumer price basket, have kept headline inflation above the central bank’s 4% target, preventing it from cutting interest rates.

WHAT IS DRIVING FOOD INFLATION HIGHER?

A drought last year and an ongoing heat wave have significantly reduced supplies of food such as pulses, vegetables and grains.

Restrictions on food exports and reductions in import tariffs have had little effect.

Although vegetable supplies generally decrease during the summer months, this year’s decline is much more pronounced. Temperatures in almost half of the country are rising 4-9 degrees Celsius above normal, spoiling harvested and stored vegetables and preventing the planting of crops such as onions, tomatoes, eggplant and spinach.

Farmers usually prepare vegetable seedlings before the June-September monsoon rains and then transplant them to the main fields. However, this year, excessive heat and lack of water have disrupted both planting and replanting, further exacerbating the vegetable shortage.

WHY DID THE MONSOON NOT HELP?

The annual monsoon, on which India’s agricultural output depends, arrived early in the southern tip of the country and advanced rapidly to blanket the western state of Maharashtra ahead of schedule. However, this initial momentum soon faded, resulting in an 18% rainfall deficit so far this season.

Besides causing the heat wave, the weakened monsoon has delayed the planting of summer-sown crops, which can only continue at full pace with sufficient rainfall.

Despite June’s rare rainfall, India’s weather office has forecast above-average rainfall for the rest of the monsoon season.

WHEN WILL THE PRICES BE REDUCED?

Vegetable prices are expected to fall from August onwards if the monsoons revive and cover the entire country as per the usual schedule. However, floods or prolonged dry spells in July and August can disrupt the production cycle.

Prices of milk, cereals and pulses are unlikely to decrease soon due to tight supplies. Wheat supplies are dwindling and the government has not announced any plans to import wheat, which will allow wheat prices to rise further.

Rice prices may rise after the government on Wednesday raised the minimum support price, or purchase price, of rice by 5.4%. Supplies of pulses such as pigeon pea, black pea and chickpea were badly affected by last year’s drought and will not improve until the new season’s crops are harvested.

Sugar prices are likely to remain high as next season’s production is expected to decline due to reduced planting.

CAN GOVERNMENT INTERVENTION HELP?

Yes, government interventions such as restricting exports and easing imports can help lower the prices of some food commodities. However, the government can do little when it comes to the prices of vegetables, which are highly perishable and difficult to import.

The government has implemented various measures to reduce food prices by restricting exports of sugar, rice, onions and wheat. However, these measures have proved unpopular among farmers and led to general election losses for the ruling Bharatiya Janata Party in rural areas.

State elections are coming up in Maharashtra and Haryana, where a sizeable farmer population will decide the outcome. The central government has been trying to win back the support of farmers and may allow some crop prices to rise rather than take aggressive measures ahead of elections in October.