Tackling Food Inflation

Retail inflation, measured by the year-on-year consumer price index, reached 6.83% in August 2023, higher than the Reserve Bank of India’s upper tolerance limit of 6%. This surge was driven by soaring food prices. The government has implemented a series of measures, including an export ban on non-basmati white rice, export ban and stocking limits on wheat, a 20% export duty on parboiled rice, a minimum export price of $1,200 per tonne on basmati rice, etc, to contain food inflation. However, these abrupt and stringent market-depressing measures are impacting farmers’ income adversely. A more rational and dependable trade policy that balances the interests of producers and consumers while containing food inflation is advocated.

The authors would like to express their sincere gratitude to Puja Mehra, senior fellow (consultant), Indian Council for Research on International Economic Relations (ICRIER) for her comments and editing of this article which was first published by ICRIER as a policy brief.

In a somewhat concerning development on the macroeconomic front, retail inflation, measured by the year-on-year (yoy) consumer price index (CPI) reached above the Reserve Bank of India’s (RBI) upper tolerance ceiling of 6% (4+/- 2%), at 6.83% in August 2023 (Figure 1). In July, retail inflation had surged to 7.44%. The recent inflation is largely because of the impact of rising food prices, contributing 57.41% in August CPI inflation. Since food and beverages carry 45.9% weight in the CPI basket (food items alone account for 39.05%), the highest in any Group of Twenty (G20) countries, managing food prices becomes critical for taming retail inflation. Furthermore, this year there are growing apprehensions related to the possible negative impact of El Niño on food production and thereby on food prices.