While the Union government is taking numerous steps to tide over the supply-demand mismatch in key food items, the issue will require key interventions for a long-term solution, Shashanka Bhide, one of the three external members on the Reserve Bank of India's (RBI) Monetary Policy Committee (MPC), has said.
"More focused attention to short-term supply-demand mismatches in the present circumstances appear necessary. However, in the longer term, technology and infrastructure initiatives would need to play a greater role," Bhide told Moneycontrol on December 22, after the release of the minutes of the December 6-8 meeting of the MPC.
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Bhide's comments come after the Consumer Price Index (CPI) data for November showed headline retail inflation rising to a three-month high of 5.55 percent, driven by an unfavourable base effect and a jump in food inflation to 8.7 percent from 6.61 percent in October.
While the prices of major vegetables, such as tomato and onion, have been volatile, those of other food items such as cereals and pulses have been stubbornly high, with the government, on December 22, announcing a one-year extension to the import duty exemption for masur dal until March 2025.
However, India's trade restrictions to alleviate domestic food pressures have been criticised by the International Monetary Fund (IMF), which said in its latest Article IV consultation staff report that the government must "expeditiously" remove barriers to the trade of food items so that global food supply improves. Further, it recommended agricultural sector reforms for "a more durable solution to fostering domestic food security".
According to Bhide, India is beginning to see a "more focused policy response" to supply-chain issues affecting prices. However, he warned that as growth rises, price pressures will be impacted by production capacity expansion and supply-chain issues.
Uneven growth
Although Bhide admitted in his statement in the minutes of the December 6-8 meeting that India's GDP growth in July-September had been "surprisingly strong", he remains concerned about its uneven nature, illustrated by the agriculture sector growth falling to a four-and-a-half-year low of 1.2 percent and production of consumer durables up a mere 1.4 percent in the first seven months of 2023-24.
Private consumption, meanwhile, was up just 3.1 percent in the second quarter.
As far as the rural economy is concerned, Bhide sees its diversification as key to providing a buffer against fluctuations in agricultural income in the long term. On the other hand, he said weak growth in private consumption and production of consumer durables seem to be "a reflection of the uneven pace of overall growth, including some of the services. These, however, appear to be short-term issues," according to Bhide, an honorary senior advisor for the Delhi-based National Council of Applied Economic Research.
"After all, the auto sector is experiencing rapid growth and so is the demand for credit. For sustained high growth, both consumption and demand would have to share the momentum," he added.
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On the whole, the economy's growth turnout over the last 12 months has been better than anticipated. Back in December 2022, Bhide had told Moneycontrol that the global slowdown and its impact on the Indian economy would be a key consideration for India's monetary policy.
While a slowdown in global growth "is still a concern", the large size of India's economy has helped maintain growth momentum, thanks to public investment and recovery in demand. "Stronger global growth will present more opportunities for fiscal consolidation as well," Bhide said.
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