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What we see in these times that the
food
The major factors that I see in the
inflation growth process is basically
related to the net national income and
their consumption practices; the
comparison of normal consumption
practices ranging from normal essential
products like dal to extra wanted
products like milk, fruit . Government
minimum support prices to weather
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conditions to increase in exports of
grains etc. have also infected the inflation
process to touch more height.1)income facing growth but
agriculture
products (demands) going down.
We notice
Farm productivity has lagged income growth
Per capita net national Income has grown from Rs 24,095 in
2004-05 to Rs 43749 in
2009-10 , a compounded average annual growth rate of 13%.
Agricultural
productivity has lagged this rapid growth in incomes , growing
less than 2% per
annum for most of the last decade. The higher incomes have
encouraged greater
consumption of richer foods -- pulses, fruit and vegetables ,
milk and meat products.
This has put pressure on prices. In the recent years, large
transfers of purchasing
power through the rural employment guarantee scheme have also
added to
demand pressure.
Production strategies still focused on staples
Our production is focused largely on basic food grain such as
rice and wheat,
demand for which is not so income elastic. The per capita
availability of pulses has
remained almost stagnant, while supply of fruit and vegetables ,
milk and meat
prodcuts is falling short of demand. Not surprsing, at a given
time prices of one or
more of these is always rising sharply, keeping the overall
inflation high. The
relatively risk-free wheat and rice cultivation because of the
government supported
prices has discouraged cultivation of other market crops.
High support prices create a floor for prices
Minimum support prices (MSP), or the price for government
purcahses, have
increased sharply in recent years. Compouned average growth in
wheat MSP in the
last four years was about 15%. This year the increase was
marginal, but that of
winter pulses is up 20%. The economic costs of procurement for
rice and wheat
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have gone up by 40% and 36% since 2005-06 . These high prices
set a floor on
market prices.
Seasonality in food prices not so stark
The government had pitched its hopes on good monsoons to lower
food prices, butover the past few years the relationship has
weakened. Earlier, food prices dropped
after monsoons, as winter crop arrived. But since 2005, there
has been a secular
rise in inflation regardless of the time of the year.
Incidentally , Indian economy took
off from 2004-05 , indicating that other drivers of inflation
had become stronger
than seasonal effects.
Monetary intervention may not help
Nearly every input into prodcuiton of farm goods from fertiliser
to labour has seen a
sharp escalation in prices. The key issue, however, is supply
falling short of demand
. In such a situation monetary policies will not help too much
in bringing down food
inflation.
India food exports to rise 12%
