Food inflation in India

Abstract

Food is the most basic necessity of human beings and food prices have very significant impact on their lives. In a developing country like India, where more than 41% of population lives below international poverty line ($1.25 per day), food prices become much more important and it is imperative to track and keep it under control. Expenditure on food items forms a major chunk of household expenditure of poor people. Food is non-substitutable and people can’t stop consuming however high prices may be, which leads to very low price elasticity of food articles. So, increasing food prices can make it difficult for people to maintain appropriate consumption levels which can lead to an adverse impact on their consumption and lives. Though government and many nongovernment organizations try to ensure availability of food for everyone by subsidizing food prices, these practices are not sustainable in long run unless food inflation in country is kept in check and there is a proper public distribution system in place. In order to keep food inflation in control, first step is to understand underlying causes which lead to high food inflation, globally as well as locally. Then it is essential to identify factors which are controllable and take proper actions to control them. Next step should be to minimize the impact of factors which are uncontrollable by any policy actions. Food prices have been increasing rapidly worldwide since early 2000s and exploded in 2007 which has resulted in major macroeconomic, political and social disruptions in many poor countries and has also added to upward inflationary pressure in richer countries. India is not an exception to this high inflation trend. We are also struggling with problem of rapidly increasing food prices. Food inflation is one of the key drivers of overall inflation. High food inflation, which is playing in double digits for last few months, is a major cause of high overall inflation in India. Rising food inflation has serious implications for whole country but it can have devastating impacts on poor vulnerable sections of society. If the food prices continue to increase at current pace, this large portion of population will not be able to sustain their current level of consumption and will have to decrease it leading to malnutrition and substandard living conditions. Countries all over the world are struggling with problem of high food inflation but they have not been able to control rising food prices which have resulted in social unrest in society and it can also be a deterrent for growth and development of economy.