A surprising trend that has not been sufficiently acknowledged is the steady decline in domestic food prices, even as the rest of the world and even successful economies like China totter under an unprecedented rise in food prices. Wholesale food prices in India, which were shooting up by more than 10% in the early weeks of July 2007, have come down to just 2.5% by the end of December. And the sharp reduction was brought about by supply responses that placed price restraints on foodgrain, the single largest component of the food consumption basket, pushing down the numbers from double-digit levels at the start of 2007 to just about 1% in the last few weeks of December. Right now, on the food inflation front, only the high price increases of rice still pose a threat. In contrast, wheat, which has touched new peaks in global markets, is well under control within India. In fact, wheat prices have been falling for the last few weeks, neutralising the need for any further high-priced imports, especially since the fairly robust rabi wheat crop will soon be in godowns across the north in another two months. The overall fall in prices is also evident in other important food items like pulses, fruits, inland marine products, condiments and spices, and even tea to some extent. All this will lighten the burden of high consumer prices that have wracked the nerves of policymakers of late. Prices of some major non-food crops are also either falling (tobacco, for example) or stagnant (sugarcane). The only major farm products that continue to register substantial wholesale price increases are milk, oil seeds and cotton.
What accounts for this sudden softening in domestic food prices? The answer would shame agrosceptics. The primary reason is the performance recovery made by agriculture, with the sector?s growth bucking trend rates for three successive quarters. So strong is the bounceback that the Prime Minister?s Economic Advisory Council has revised its 2007-08 growth estimates for the sector upwards to 3.6%. The sector, it seems, is more responsive to price signals than earlier thought. While this is cause for cheer, we should not be complacent on rice, the prices of which may not offer any respite for some time. Also, acreage trends are a tad disappointing. The farm area sown with cereals during the latest rabi season was just 92% of the figure the previous year.
