Analysis from a macroeconomic perspective

1. Group No 5 Presents
FOOD INFLATION IN INDIA

2. Defining Inflation and food inflation in India
Inflation is the rate at which the general level of prices for goods and services is rising and,
consequently, the purchasing power of currency is falling.
Food inflation in India has remained stubborn in recent years. A number of proximate
factors such as increasing demand particularly arising from higher rural wages, rising
agricultural cost of production, changing consumption pattern favouring protein items,
increases in minimum support prices (MSPs) and droughts in certain years are believed to
have led to higher food inflation.

3. • Pre-Green Revolution (1950–51 to 1964–65) : At the time of
independence, India witnessed an acute shortage of food
due to the disruption caused to the agricultural sector
following the partition of British India in 1947
• Initial Stage (1967–68 to 1979–80) : The agrarian stagnation during
the first half of the 1960s eventually led to the introduction
of a new high yielding varieties (HYV)– seed–fertiliser
strategy, popularly known as the Green Revolution, starting
from 1966
• Maturing Stage (1980–81 to 1991–92) : Consequent to the spread of
the HYV–seed–fertiliser strategy to more crops and almost
all geographical areas, India’s agrarian economy witnessed
a revival in the 1980’s
• Post-Economic Reform (1992–93 to 2012–13) : The economic
liberalisation strategy introduced in India in June 1991 had
no explicit mandate to liberalise the Indian agriculture
sector and integrate it with the global economy
Let’s
delve
into
history

4. Recent trends in Inflation --- Part 1
• Domestic Scenario: All the food article groups experienced high inflation between March
2008 and July 2010. The peak monthly inflation rates witnessed by the food article
groups ranged from 19.49% (food grains) to 48.60% (tea and coffee)
• Domestic v/s Global Scenario : The global food inflation, measured on the basis of the monthly
food price index (base 2005=100) of the International Monetary Fund (IMF), started
building up from August 2005 but remained highly volatile until March 2006. From April
2006 onwards the world witnessed a significant surge in food prices, which firmed up
until September 2008
Looking into domestic scenario and then the global trend

5. Recent trends in Inflation --- Part 2
Role of Supply-side Constraints
We begin our analysis of the supply-side factors with the role played by oil prices in fuelling
food inflation. By and large, fuel prices are revised only partially that too with a time
lag in response to changes in international oil prices.
In fact, since January 2007 mineral oil and food inflation in India have behaved similarly. This
is due to the overwhelming effect of two back-to-back agricultural supply shocks that
occurred in 2008-09 and 2009-10 .

6. Taxation and Inflation
• Government increases
taxes to increase
revenue receipts or
discourage expenditure
• Increase in taxes leads to
decrease in aggregate
demand
• Real GDP decreases
along with inflation

7. Fiscal stimulus and Inflation
• Government increases
spending to reduce
unemployment during
periods of recession
• Leads to increase in
aggregate demand
• Output increases but
prices also rise

8. MGNREGA
• Aims at providing 100 days employment per laborer per year
• Total expenditure of 3 lakh crore since its implementation
• Wage rate varies between Rs. 167 to Rs. 259 per day
0%
5%
10%
15%
20%
0
50
100
150
200
250
2000 2002 2004 2006 2008 2010 2012
Wages vs Inflation
Wage Inflation
0
10000
20000
30000
40000
50000
Budget
Budget

9. MGNREGA
• Less migration to cities for work resulting in
higher rural inflation
• Led to shortfall in farm/low-skilled industry
labor
• No productivity from labor, only free income,
was supposed to generate more jobs due to
multiplier effect

10. Agricultural Produce Market Committee (APMC) Act

11. The Loopholes…
Procurement distortions…

12. The Loopholes…
Too many intermediaries…

13. The Loopholes…
Implementation across states…

14. The Loopholes…
Calibrated rise in MSP…

15. The Loopholes…
Increased burden on Government…

16. The Loopholes…
• Essential Commodities Act (ECA) creates uncertainty in the market
• High import duties
• Wastage due to inefficient supply chain and lack of post-harvest
infrastructure especially for perishable goods
 Rs 44,000 crore Estimated annual loss due to wastage of fruits, vegetables
and grains
 30 million metric tonnes Installed capacity of cold storages
 61 million metric tonnes Required capacity of cold storages
• Inefficient Public Distribution System (PDS)
 478,000 No. of fair price shops
 400 million No. of beneficiaries
 40% of estimated leakage

17. “If all the economists were laid end to end,
they’d never reach a conclusion.”
- George Bernard Shaw

18. Source: Ministry of Statistics and Programme Implementation (MOSPI), India
FOOD INFLATION FOR THE YEAR 2012 - 2016

19. "Food security means availability of sufficient food grains to meet the domestic
demand as well as access, at the individual level, to adequate quantities of
food at affordable prices. The proposed legislation marks a paradigm shift in
addressing the problem of food security – from the current welfare approach
to a right based approach. About two thirds (approx. 67%) of the population
will be entitled to receive subsidized food grains under Targeted Public
Distribution System. In a country where almost 40% of children are
undernourished the importance of the scheme increases significantly.“
The National Food Security Bill, 27th report

20. I know
nothing,
Ygritte.

21. • Economic growth
• Food inflation and savings
• Impact on rupee
• Impact of fertilizer and power
subsidy
• Impact on CAD and others
After-effects