Editorials

by Rajen Kumar

APEDA Rendering Lip Service

For over four years now, we have been making relentless efforts to fill information deficit that painfully exists in the country's Micro, Small and Medium Sector. Encouragingly enough,...

Special Reports

Jan 2012

Be Skeptical. Be very Skeptical. Mistake upon Mistake

In recent months, we've had a few slip-ups by the official statistical system in India: • Yesterday's IIP release was preceded by a mistake. Mint says: On Monday, the...

Focus

Good Monsoon to Bring Down Food Inflation; But Will Growth be a Casualty?

Gurdeep Singh
Aug 2010

At a time when both Houses of Parliament are being repeatedly rocked by the Opposition over the government's failure to check prices, the figure of food inflation at 9.67 per cent for the week ended July 17, a single digit number for the first time in the year, would provide some relief to the harassed UPA government.

This weeks figure needs to be compared to 12.47 per cent recorded during last week. Inflation fell by 2.80 percentage points for the week ended July 17 from 12.47 per cent in the previous week, as prices of vegetables, including potatoes and onions declined.

This is the second week that food inflation slowed down, with good monsoon raising hopes of better agricultural growth and enabled farmers to plant more crops, like rice, sugarcane, pulses, and soybeans.

In large parts of India paddy is grown and a bountiful monsoon would bring prosperity to the farmers. The regrettable fact is that not much investment in the last several years, both public and private, has taken place in irrigation, despite official exhortations to the contrary.

Food inflation is measured by the Whole Sale Prices of Agricultural Products, for which data is compiled by the Ministry of Commerce .Overall vegetable prices on a weekly basis went down by 0.34 per cent. Food inflation has remained above the 16 per cent level for most part of the year, before falling sharply to below 13 per cent since mid-June.

Heavy showers over most parts of the country in recent days prompted Agriculture Minister Sharad Pawar yesterday to say that grain output this year would exceed last year's figure.

Both Finance Minister Pranab Mukherjee expects prices to moderate by year end, while Prime Minister's Economic Advisory Council projects prices to go down by March next. Who ever may be correct, the fact of the matter is that food inflation is set to decline because of adequate rain.

The June to September monsoon rains are the main source of irrigation in India. Reserve Bank of India Governor Duvvuri Subbarao, who raised interest rates this week for the fourth time since mid-March, said rainfall will play a key role in the Central Bank's efforts to slow the benchmark Wholesale Price Inflation to 6 per cent by March from 10.55 per cent now.

Taming Inflation

The RBI in its recent credit policy review raised the reverse repo rate by half a percentage point to 4.5 per cent and the repo rate to 5.75 per cent from 5.5 per cent to compress liquidity from the system, and tame inflationary expectations.

Going back to the end of 2009, inflation was completely driven by food. From November onwards, there was a contribution from non-food manufacturing and as well as energy.

In January 2010, when monetary policy was normalised and RBI activated the tightening cycle phase, it was recognised that non-food inflation had started to show up. The pace of acceleration surprised economists, which was one the motivations for taking a series of actions by the RBI.

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