Inflation in India

Ques. “Food price inflation in India clearly underscores the need for understanding the heterogeneities across food commodities”, while analysing the given statement describe the causes of inflation and measures to be taken by the government of India to deal with it.

Inflation is the percentage change in the value of the Wholesale Price Index (WPI) on a year-on year basis. It effectively measures the change in the prices of a basket of goods and services in a year. Inflation occurs due to an imbalance between demand and supply of money, changes in production and distribution cost or increase in taxes on products.

Causes of inflation:

  • low agricultural productivity and yield
  • global price changes
  • scarcity of resources such as land and water
  •  domestic price policies such as Minimum Support Prices
  • stocking and trade policies (both international and domestic)
  • supply constraints such as lack of proper storage and warehouse facilities, which have resulted in post-harvest losses

Measures needed:

  • Macro policies like monetary tightening by the RBI
  •  Commodity-specific measures implemented by different branches of the government (trade policies and domestic interventions in food markets) have to be used to deal with inflation.
  • Combining both macro as well as micro perspectives may be crucial to design policies to rein in inflation.
  • Emphasis on well-functioning PDS system like in Chhattisgarh where leakages have been checked because of measures like colour coding of transport vehicles and raising the commission of PDS shopkeepers.
  • There must be a gradual movement toward a cash transfer system that depends on development of backend facilities such as bank outlets.
  • In food items with a high value, a case- by-case approach is needed. Supply side issues are need to be explored for finding the right policy mix.
  • Current government’s paradigm of accepting short-term pains to incur long-term gains, it should seize this opportunity of high food prices.
  • Investing in the private sector in cold chain or processing units needs to be encouraged. This will create rural jobs that are not farm-related, and create more efficient value chains, giving a better deal to farmers and consumers alike.
  • Over the long run, streamlining wholesale markets under Agricultural Produce Market Committees, reducing limitations on private-sector procurement and storage, and checking on double taxation in interstate movement, need to be considered.

Government must gear up toward climate-smart agriculture (drought-resistant crops, conservation agriculture, etc.) to increase yields and income of farmers. This will increase farmers’ productivity while providing the much-needed price stability to consumers.

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