Weather Proof Food Security

Why in News?

• The consumer price index inflation (CPI) figures for April have come down to an 18-month low of 4.7% and food prices have fallen even lower (3. 84%).
• However, to achieve the twin objective of managing inflation with high growth it is important that the RBI and Government of India must work in tandem to manage food and beverages inflation.

 

CPI – Meaning and components

• Meaning
  • It refers to a measure of price changes in a basket of consumer goods and services purchased by households.
  • It measures price fluctuations at the consumer level and divided into eight categories: education, communication, transportation, recreation, clothes, foods and beverages, housing, and medical care.
  • The CPI is published by the National Statistical Office (NSO)under the Ministry of Statistics and Program Implementation, anduses a base year set at 2011-2012.
  • CPI data is published on a monthly basis.
• Weightage of components
  • Food and Beverage – 45.86%
  • Housing – 10.07%
  • Fuel and Light – 6.84%
  • Clothing and Footwear – 6.53%
  • Pan, tobacco, and intoxicants – 2.38%
  • Miscellaneous – 28.32%

 

Reasons for Decline in CPI inflation

• Decline in Food Prices: Food inflation dropped from 4.79% to 3.84%.
• Decrease in Oil and Fats price: As per the latest NSO data, prices of ‘oil and fats’ declined by 12.33%, followed by vegetables (6.5%), and ‘meat and fish (1.23%) during April on an annual basis.
• RBI’s decision to keep the repo rate unchanged: Recently, the Monetary Policy Committee stopped its rate hike, retaining the repo rate at 6.5%.

 

Concerns

• Managing food and beverages inflation
  • The food and beverages component in the Indian CPI has a weightage of 45.86 per cent, the highest amongst G20 countries.
  • Managing this component to around 4 per cent is critical to taming overall inflation.
  • This component of inflation cannot be managed only through monetary policy, nor even by fiscal policy, because it is often triggered by external shocks, such as droughts and breakdown of supply chains, for instance, during the Covid pandemic and the Ukraine war.
• The overall Cereal and products Inflation
  • The overall cereal and products inflation is still at a very uncomfortable level, 13.7 per cent.
  • Rice (The biggest crop of the kharif season) inflation (non-PDS) for April was 11.4%.
  • Wheat (The most important rabi crop) inflation is still very high at 15.5 per cent.
• Milk and Milk products inflation
  • Inflation in this category in April was at 8.85 per cent.
  • It has the highest weight amongst 299 commodities that comprise the CPI basket, its contribution to CPI inflation in April was almost 12 per cent, the highest amongst all commodities.
  • High Inflation in this category has been attributed to Lumpy Skin Disease that has impacted a large number of animals and the fodder price inflation that has been very high, between 20 and 30 per cent, in recent months.
• EL Nino effects
  • It could cause below normal rainfall, even a drought.
  • All droughts since 1947 have been El Nino years, but all El Nino years are not necessarily drought years.
  • The unseasonal rains in April end and the first week of May do not auger well for agriculture. 

 

Some Reliefs

• PM Garib Kalyan Yojana: More than 800 million people are getting free rice and/or wheat (5kg/person/month) under the PM-Garib Kalyan Yojana. So, they are well protected from cereal inflation.
• Excess FCI buffer stocks: The rice stocks with the Food Corporation of India (FCI) are more than three times the buffer stock norms for rice. 
• Good Wheat Procurement: The wheat procurement has been sufficiently good (touching 26MT) to meet the requirements of the public distribution system (PDS) which is around 22 MT and it gives some room for open market operations.

Further steps to be taken by the government to tame Cereal and Milk products inflation

• Proactive buffer stocking policy (unloading excess stocks in open market operations)
  • To tame rice price inflation, the government can unload 5 million tonnes (MT) of rice from the Central Pool in open market operations, and easily bring down the rice inflation to around 4 per cent.
  • And the window to do that is from now to around September-October, just before the rice harvest season starts.
• Import policy (reducing import duties)
  • Reducing import prices could help in bringing down inflation in milk and milk products.
  • The policy instrument to lower import duties on fat, which are currently at 40 per cent and skimmed milk powder (SMP), which is at 60 per cent.
  • Indian prices of SMP and fat (butter) are much higher than the global prices, and therefore, by reducing import duties to 10 to 15 per cent, there would be some imports of fat and SMP.

 

Conclusion

• Inflation is coming down. But to overcome the challenges posed by El Nino, policymakers must check the prices of cereals and milk.
• These policy actions must be pre-emptive in nature and not reactive to the event.

 

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Source: The Indian Express