Food inflation is holding us back...

The food-inflation that is rampant in the Indian-economy could be primarily ascribed to the low level of technology, investment and over-dependence on rains for irrigation have made the RBI delay rate cuts in the expectation of a good monsoon and lower prices of food. However, INDIA is also a big exporter of cereals (rice and wheat), in which inflation is close to 6.3% and had been higher in the previous years, could be brought down to a lower level if we try to reduce exports and increase domestic-supply to lower inflation. The men in authority argue that they cannot increase domestic-supply by restricting exports because it would lower domestic-prices of cereals and would hurt farmers. Nonetheless, everybody, the government and the RBI, still expect that a better monsoon would help bring down the inflation in cereals, therefore if we increase domestic-supply by curbing exports it would have the same outcome, lower prices. INDIA could easily lower some of its inflation by curbing export of cereals. Food-inflation has kept the RBI in the delay mode in the expectation that time may itself improve the supply-side without lower interest-rate, however the government has committed interest-rate subvention which might not work with credit-facilities-gap in the village areas where most of the farmers are forced to borrow at very high rates form traditional money-lenders. Agriculture has now become a high cost and risk sector of the economy because of high rural credit cost and hole in irrigation facilities. Lack of the irrigation facilities and agricultural loans have been the main culprits for farmer’s suicide. The policy setters must try to eliminate these repercussions which would also reduce inflation and interest rate and propel economic-growth. Prosperity of agriculture, lower food inflation and lower interest-rates are sine-qua-non for a healthy-high economic growth. Nevertheless, allowing 100% FDI in food retail and processing was a major supply-side reform of this year’s budget which might again help reduce food-inflation and increase farmer’s income by improving the supply chain and storage and by reducing the middle man chain in the agriculture. The government has pledged to increase farmer’s income in five years which would affect demand and growth positively. The government’s vision of the rural and agricultural economy would take time to materialize to bring out their best, but, implementation is the key and the sooner it is, the better it is.