THE GIST of Editorial for UPSC Exams : 18 December 2019 (The cost of food (Indian Express))

The cost of food (Indian Express)

Mains Paper 3: Economy
Prelims level: Food inflations
Mains level: Impact of food inflation on economy

Context:

• Retail food inflation crossing 10 per cent, the first time in nearly six years.
• The suddenness of the increase (from under 3 per cent in August to 10 per cent-plus in November) and the fact that the Narendra Modi government’s tenure has been marked by low consumer food prices (an average rise of hardly 3.3 per cent year-on-year during its first term from June 2014 to May 2019) makes it all the more unsettling.
• That “core” consumer inflation — which excludes price increases in the more “volatile” food and energy components — is still only 3.5 per cent cannot be any consolation.
• Food prices strongly shape the inflation expectations of Indian households and, in turn, their spending behaviour.
• The monetary policy’s overarching concern is price stability.
• The Reserve Bank of India (RBI) has to pay as much attention to inflation expectations as actual inflation. Food inflation, in other words, cannot be dismissed as “non-core”.

Impact of transient inflation:

• The impact of it has been felt most in vegetables, which have registered the highest inflation of almost 36 per cent for November. But since the extended rainfall has also helped fill up reservoirs and substantially recharge groundwater aquifers, one can expect a production rebound in the current rabi crop due for harvesting from March-end.
• However, there’s reason to believe that the inflation apparent or likely in pulses, milk (Amul and Mother Dairy have just raised prices) and even sugar is not one-off.
• Most agri-commodities have gone through a protracted bear phase, with consumer food inflation during the period between September 2016 and August 2019 not only averaging a mere 1.4 per cent, but consistently trailing overall retail inflation.
• At some point, prices have to play catch-up and it’s quite possible that’s beginning to happen.

Way ahead:

• If food prices are simply correcting from lows, neither the government nor the RBI should do much to stop that.
• Rather than resorting to export bans, subsidised imports or stockholding restrictions — these will only discourage investments in modern warehousing, cold storage, processing and farm extension support.
• The focus of policymakers should be on removing structural impediments to the production and free movement of agri-produce.

Conclusion:

• The return of food inflation may not allow RBI to further slash interest rates now, but it certainly opens up room for much-delayed reforms in agriculture. Farmers will not mind the rationalisation of subsidies when prices are looking up.

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Prelims Questions:

Q.1) With reference to the National Survey conducted in 2018 on substance abuse trends in the country, consider the following statements:
1. In the age group 10-17 years, 20 lakh individuals use cannabis, a prevalence of 0.9 per cent.
2. Ministry of Social Justice and Empowerment has formulated and is implementing a National Action Plan for Drug Demand Reduction (NAPDDR) for 2018-25.

Which of the statements given above is/are correct?
A. 1 only
B. 2 only
C. Both 1 and 2
D. Neither 1 nor 2

Answer: C
Mains Questions:
Q.1) How the return of food inflation may not allow RBI to further slash interest rates but opens up room for delayed reform? Comment.