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  1. Urbanites cheer, farmers shed tears as falling food prices pull inflation lower

Urbanites cheer, farmers shed tears as falling food prices pull inflation lower

Falling food inflation poses serious policy challenge to the government, which may find itself torn between balancing a large consuming population’s need for modest food prices and the farmers need for a sustainable rise in incomes.

By: | Published: June 13, 2017 2:54 PM
Food inflation has subdued with the government’s active role in controlling the rise in prices and RBI’s inflation-targeting mandate. Retail food prices in May actually fell 1.05% from a year ago. (Image: Reuters)

Most urban-dwelling Indians might have cheered the inflation data released yesterday, which showed that the consumer price index inflation fell to a five-and-a-half-year low of a mere 2.18% for the month of May as compared to the same month a year ago. What must have brought more joy to most households is the fact that food inflation was in negative, which means that prices of food actually fell.

However, standing opposite this widespread smile of relief is the face of sobbing Indian farmers, agitating, protesting, and more recently, getting killed while taking bullets.

Over the last one year, the food inflation has subdued substantially, with the government’s active role in controlling the rise in prices and RBI’s inflation-targeting mandate. The latest inflation data released yesterday showed that retail food prices in May fell 1.05% from a year ago. This compares with a modest 0.61% inflation on-year in April. This is in sharp contrast to the last year, when food inflation was as high as 8.35% in July, from where it subdued to 3.32% in October, and as low as 0.53% in January.

Farm income falls

Low retail food prices have been known directly hurt farmer incomes. In the recent years, farmers, who have been in serious troubles due to modest rise or even a fall in food prices, have been forced to sell their produce in the open markets below the minimum support price (MSP). Not only this, they have been selling a lot of produce ranging from potato, tomato, onion and pulses below their costs, and have been unable to recover the expenses incurred in cultivation.

A sharp decline in commodity prices and the unprecedented move of demonetisation of high-value currency notes have further aggravated the farmers’ woes over the last one year. Various reports from the ground show that market prices of vegetables such as potato, tomato and garlic have fallen to less than half since July. Onion prices are down by over 20% in the same period.

MSP fails to support

The MSP itself, which is supposed to be a support system to sustain farmers’ income against the shocks of falling commodity prices, has not been able to fulfil much of its purpose. MSP has risen by an average of merely 3.5% per year in the last three years’ of the present NDA government’s rule, whereas overall average inflation during the same period has been at about 7%.

This is not in line with the recommendations of National Commission of Farmers headed by M S Swaminathan, which had suggested fixing MSPs at 50% above the cost of cultivation. Also, the fall in real income of the farmers, as has been pointed out by numerous surveys, is a far cry from Prime Minister Narendra Modi’s promise to double farm incomes by the year 2022.

The situation poses a serious policy challenge to the government, which is now finding itself torn between balancing a large consuming population’s need for modest food prices and the farmers need for a sustainable rise in incomes.

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