Government steps up firefight against soaring food inflation

India has recently witnessed a surge in inflation, reaching a 15-month high, primarily due to soaring prices in essential commodities, particularly vegetables, pulses, spices, and cereals.

India has recently witnessed a surge in inflation, reaching a 15-month high. This sharp uptick in inflation can be attributed to soaring prices in essential commodities, particularly vegetables, pulses, spices, and cereals. To counter this inflationary pressure and ensure the availability of these essential goods, the Indian government has rolled out a series of measures.

The Reserve Bank of India (RBI), under the leadership of Governor Shaktikanta Das, is determined to maintain a tight grip on inflation.

In the latest MPC speech, Das said that vegetable prices may see significant correction in a few months. However, global uncertainties have added to fears of food inflation picking up.

"Uncertainties, however, remain on domestic food price outlook due to sudden weather events and possible El Niño conditions in August and beyond. Global food prices are also exhibiting a hardening bias on renewed geopolitical tensions. Crude oil prices have firmed up in recent weeks and its outlook is clouded by demand-supply uncertainties," Das said.

While the RBI aims to keep inflation within a range of 2 percent to 6 percent, it strives to anchor inflation close to the 4 percent mid-point of this band. Economists, however, predict that if inflation remains elevated over the next two quarters, the central bank may opt for near-term rate hikes.

Prime Minister Modi's Commitment

To mitigate the impact of rising prices, the government has taken several steps. These include reducing retail prices for specific stocks of tomatoes through various agencies, imposing export bans on certain categories of rice, and releasing wheat into the open market under the open market sale scheme, all aimed at stabilizing prices of essential commodities.

Prime Minister Narendra Modi, addressing the nation on the 77th Independence Day, acknowledged the global challenge of high inflation and its implications for India's import-dependent economy. He stressed that India, despite being better positioned than many other nations, must continue to take measures to ease the burden of rising prices on its citizens.

“We cannot be satisfied because our situation is better than the world. We have to take more steps to minimise the burden of price rise on our people. We will definitely take the steps. My efforts will continue,” said Modi, underscoring his unwavering commitment to addressing this issue, ensuring that the government's efforts persist.

Export Bans and Duties

In a move towards that commitment, on August 19, the government announced a 40 percent export duty on onions until the end of 2023, primarily to control rising onion prices driven by supply-side challenges. This announcement follows the government's decision to release onions from its buffer stock in targeted regions, a measure aimed at keeping prices in check until the new crop arrives in October.

A recent Bloomberg report, quoting officials who refused to be named, said government is contemplating a strategy to shift up to Rs 1 trillion ($12 billion) from various ministry budgets in an effort to address the surging costs of food and fuel. The objective is to manage these rising expenses without jeopardizing the federal deficit target. Individuals familiar with the matter have disclosed this information.

Prime Minister Narendra Modi is expected to make a decision on this matter in the coming weeks. Possible measures could include a reduction in taxes on domestic petrol sales and a relaxation of import tariffs on cooking oil and wheat.

This initiative would mark the second consecutive year of such adjustments aimed at alleviating costs for consumers. Last year, the government introduced a $26-billion plan with a similar objective. These proposals emerge in the wake of the central bank's recent decision to keep borrowing costs unchanged, maintaining one of the highest rates in Asia. The central bank's decision underscored concerns about the escalating prices in the country.

Moreover, to maintain domestic supply and stabilize prices, the Indian government imposed a ban on non-basmati rice exports on July 20, 2023, following a 20 percent export tax introduced in September 2022. While this decision disrupted the global rice supply chain, it was a necessary step to ensure an ample domestic rice supply and gradually bring prices down.

It also imposed a 40 percent export duty on onions until the end of 2023. The move is the latest by the Centre to contain prices of key vegetables amid a massive rise due to supply-side issues.

The govt's multi-faceted approach against inflation

In summary, India is taking a multi-pronged approach to address the inflationary pressures, with both the RBI and the government implementing policies and measures to stabilize prices and ensure economic stability. These efforts underscore the nation's commitment to maintaining inflation within the desired range and minimizing its impact on the populace.