Must be on guard till June next year as global food prices soar, says NITI Aayog's Ramesh Chand

Surge in vegetable prices and sustained cost pressures in key staples such as pulses and cereals drove India's headline retail inflation to a 15-month high of 7.44 percent in July.

The world is grappling with the impact of a surge in the price of essential commodities with Russia blocking Ukraine from shipping grain to the world, India restricting non-basmati white rice exports, and the fear of lower supply of rice from the world's largest producer, China. Given that international food markets could remain turbulent for some time, India needs to stay on guard on rising global food prices at least till the first quarter of the next financial year or June 30, 2024, said NITI Aayog member and agricultural economist Ramesh Chand.

Chand acknowledged that in a connected global economy, India cannot entirely insulate itself from the impact of rising food prices in world markets, and can only take appropriate measures to moderate its effect on domestic markets.

"If internationally prices are rising, say , 20 percent, we can take measures to limit that to about 10 percent. In an integrated world, there are so many ways prices find a way to enter domestic markets. You may not export wheat, but there is atta, and if not atta, there is bread that can go from India to other countries. If not bread, it could be cookies," Chand told Moneycontrol in an interview, adding that India can only limit the transmission of international prices to local markets.

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The NITI Aayog member warned that the world may be headed towards a milder version of the food security crisis that emerged in 2007, a period that witnessed an exponential increase in the cost and availability of key staples such as wheat, rice and corn.

Global food commodity prices rose in July, influenced by Russia’s termination of the Black Sea Grain Initiative that ensured safe passage of grain from Ukraine and new trade restrictions on rice, the Food and Agriculture Organisation of the United Nations (FAO) reported on August 4. The FAO Food Price Index, which tracks monthly changes in the international prices of globally traded food commodities, averaged 123.9 points in July, up 1.3 percent from the previous month but 11.8 percent below its July 2022 level.

Chand added that India has always followed a policy of strategic liberalisation and not free trade. "So if international prices go very low, we protect the interests of farmers, if international prices go up then we protect the interest of consumers," he pointed out. The Indian government has to take quantitative measures to keep a lid on prices whenever it shoots up, he said, citing the government's decision to ban wheat exports from May 2022 because of a surge in global prices of the grain.

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Chand said while wheat and rice inflation typically continues for eight to nine months once it sets in, he termed the spike in tomato prices as transitory. The government has already put in place safety nets to arrest any potential price rise in other key items, he said. In the case of onions, it has already started procuring and maintaining a buffer stock, and similarly in the case of pulses, there is a "good stock of some variants like chana dal" and the Centre would be open to intervening whenever the need arises, according to the NITI Aayog member.

Surge in vegetable prices and sustained cost pressures in key staples such as pulses and cereals drove India's headline retail inflation to a 15-month high of 7.44 percent in July. The government has taken measures to rein in domestic prices and to ensure sufficient availability such as slashing retail prices for particular stocks of tomatoes via agencies, implementing a ban on export of a certain category of rice, as well as selling wheat under the open market sale scheme to bring down prices of essential commodities.