The Reserve Bank of India (RBI) has hiked interest rates nine times since March 2010 to curb inflation, but clearly it hasn’t been enough.India’s food inflation reached a 2-month high of 9.01% for the week ending May 28, up from 8.55% the previous week.
The government expects food prices to fall by September or October after the monsoons. Planning Commission deputy chairman Montek Singh told Moneycontrol:
“Our current assessment is that food inflation at the moment is too high, but there is no domestic shortage. Cereals are in a very good shape… we have more than enough stock.
With good macro management and likely good monsoon, by September-October, we will finally be able to bring price level and inflation rate down to a reasonable level”
This seems a little unlikely at the moment since the government has raised prices of of rice and oilseeds it provides to farmers. Bloomberg reports that the government also increased the minimum purchase price of raw rice to $24 per 100 kilograms (220 pounds) from $22.4. Soybean prices were raised to an all time high of $37.8 per 100 kilograms.
Now farmers have another problem to tackle. The government is trying to push through a seeds bill that would force farmers to use seeds from multinational companies and require farmers to pay royalty fees.
A report from Singapore Bank DBS suggests that higher food prices may be good for the country since it would boost national income. Not everyone agrees however. While export income into the country may grow, India spends 20% of its income on food and more prices increases will be a huge burden on its 650 million poor.
In an earlier report, DBS pointed out that food inflation in India was driven largely by demand-side factors and that right now, supply is the problem. Food production has lagged income growth. And while the economy’s rate of growth continues to be high, it’s ability to keep up with food demand is lagging.
Business Insider Emails & Alerts
Site highlights each day to your inbox.