Opinion: Inflation-targeting may add to hunger

By Dipa Sinha While the period before the pandemic saw exceptionally low food inflation in India, the current inflation, particularly in food items, is putting added pressure on people’s ability to access adequate and nutritious food. In a country where the poor spend over 40% of their incomes on food, sustained food inflation poses a danger […]

By Dipa Sinha

While the period before the pandemic saw exceptionally low food inflation in India, the current inflation, particularly in food items, is putting added pressure on people’s ability to access adequate and nutritious food. In a country where the poor spend over 40% of their incomes on food, sustained food inflation poses a danger to household food security, leading to a rise in poverty and hunger.

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Field surveys as well as FAO statistics show that as a result of the impact of the pandemic on livelihood and employment, and a general slowdown in the economy, heightened food insecurity persisted even months after the lockdowns ended. In recent months, this has been exacerbated by food and fuel price inflation.

Out of Reach

The monthly ‘food index’ of the wholesale price index (WPI) has averaged around 10% since the beginning of 2022, reaching a peak of 12.4% in June 2022. Among cereals, while wheat prices started going up from September 2021 onwards, the Ukraine invasion and heat waves in India added to the global price rises as well as vulnerability in wheat availability. Pulses, the main source of proteins in Indian diets (due to the unaffordability of animal products), on the other hand, saw very high levels of inflation in 2021. They are now witnessing lower levels, which could also be because of the high base.

The prices of edible oils, milk and milk products and vegetables too have been rising continuously. Similar trends are seen in the consumer price index (CPI) as well, with the inflation in cereals being 7%, oils and fats 7.52%, vegetables 10.9% and food and beverages overall at 6.71% in July 2022.

Wages Decline

The increase in food inflation is further concerning as wages have not kept pace with prices. It is estimated that the average agricultural wages (real) declined 2.67% and average non-agricultural wages (real) in rural areas declined 4.51% in the two-year period between June 2020 and June 2022. (Labour Bureau)

With food becoming less affordable, it is seen that people switch to inferior quality foods and also cut down on more nutritious items such as fruits and meat. These findings in the literature are also vindicated by field experience in recent times where people talk about reducing their consumption of milk, eggs, pulses, vegetables and so on as a result of the increase in prices. This was also reported in the Hunger Watch survey conducted by the Right to Food campaign in January 2022.

These are worrying trends considering that diets in India have been shown to be lacking in diversity and essential nutrients. The FAO’s State of Food Insecurity report in 2022 estimated that about 70% of the people in India could not afford a healthy diet.

Experts caution that the inflationary pressures on food prices are likely to continue due to various factors related to climate as well as speculative finance. The introduction of a 5% GST on food items including rice, wheat, curd, lassi, papad and honey could further escalate food prices. Although there is no macro data available on the impact of the GST on food prices, anecdotally it has been seen that traders and retailers charge higher prices from customers to account for the tax.

In these circumstances, the foodgrains being distributed for free by the government to about 800 million beneficiaries as part of Covid relief measures have been particularly useful in protecting people.

Although only cereals are distributed through this scheme (PMGKAY), they help people maintain their cereal consumption even during increases in prices of staples and also release that much income for them to be able to spend on other foods. The continuation of this scheme is critical.

Supply Shocks

The public procurement of wheat in 2022 has been half of the previous years. This was partly due to the fall in production owing to heat waves and also because the market prices rose above the minimum support prices (MSP) offered by the government. In the current paddy season, reports suggest that with reduced sowing because of delayed rains and low productivity as a result of the crops being shorter than usual, paddy production could be about 15% less than last year. It is yet to be seen whether this will impact the procurement by the government this year.

With rising prices and supply shocks, it is clear that additional efforts in the form of offering higher prices to farmers might be required to maintain government stocks. These stocks have played a very crucial role in the fight against hunger in India, especially during the pandemic years, and could continue to do so in the face of rising inflation.

While the expansion of the Public Distribution System (PDS), as well as using other government schemes such as the school mid-day meals and anganwadi services (for children under six, pregnant and lactating women) are important measures towards protecting people from hunger, there is also a need to understand the structure of food inflation in India and address various issues related to production, trade, storage and transportation for different crops. As some have argued, the solution to food inflation in India may not lie in traditional monetary policy interventions. Inflation-targeting may, in fact, worsen the situation by reducing the incomes of the poor further.