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Is food inflation here to stay?
Fri, 22 Jul Pre-Open

When one opens the newspaper in the morning, one would invariably be greeted by at least one article on food inflation. This is not surprising considering the country has been battling the food inflation demon since the last two years. Each successive week, a government spokesperson declares that food inflation will come down in the next 2-3 months. But even after so long, this has not happened. Although food inflation has moderated recently, this has been due to a high base effect. We believe that food inflation is going to remain high even if year turns out to be another year of bumper crop.

But why would this be the case. It can be argued that the subpar monsoon which we saw a couple of years back is the culprit. Due to shortfall in production there was depletion in buffer stock with the result that there was huge demand from the government to top up its stocks. This coupled with the normal consumption demand resulted in a shortage which pushed up prices. This is true. But as it turns out this is only one of the reasons and not the only reason. It is estimated that 20-30% of the total grain harvested is wasted due to lack of storage capacity, regional imbalance in warehouses, lack of adequately scientific storage and inefficient logistic management. The government has been aware of these issues for years but has been dragging its feet. The fact that it has not learnt its lesson is clear from the fact that grain producing states are now complaining that grain consuming states are not picking up stock due to government policies. At this stage, one would have expected the government to at least take care that the food grain lying with the Food Corporation of India is available to those who need them. But it seems that all that is freely available and in abundance is red tape.

The infighting between state and central government over food policies is another point now added to the long list of reasons why food inflation is here to stay. If food inflation is to be controlled, then a lot more than lip service is required. The government needs to pull up its socks and frame a food policy which covers not only the production of food but also the delivery mechanism.

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