Que. What are the causes of persistent high food inflation in India? Comment on the effectiveness of the monetary policy of the RBI to control this type of inflation.
भारत में निरंतर उच्च खाद्य मुद्रास्फीति के कारण क्या हैं? इस प्रकार की मुद्रास्फीति को नियंत्रित करने में आर.बी.आई. की मौद्रिक नीति की प्रभावशीलता पर टिप्पणी कीजिए।
Structure of the Answer
(i) Introduction: Introduce the issue of “persistent high food inflation” in India and highlight its economic and social implications.
(ii) Main Body: Analyze the causes of food inflation and comment on the effectiveness of “RBI’s monetary policy” in controlling it.
(iii) Conclusion: Conclude with the necessity for additional policy measures to address supply-side factors alongside “monetary policy” interventions.
Introduction
Persistent “food inflation” in India severely impacts household budgets and “economic stability,” highlighting the need for effective policy interventions and addressing supply and demand challenges for control.
Causes of Persistent High Food Inflation in India
(i) Structural Supply Constraints: Low “agricultural productivity,” fragmented land holdings, and limited technological adoption restrict food supply, creating upward price pressure.
(ii) Climate Vulnerability: Monsoon dependence, droughts, and erratic weather patterns disrupt crop yields, causing frequent price volatility in the food sector.
(iii) Rising Input and Logistics Costs: Increased costs of “fertilizers,” fuel, and electricity heighten production expenses, leading to higher consumer prices for food.
(iv) Demand-Supply Imbalance: Shifting dietary patterns toward protein and fruits due to rising incomes create demand that often outpaces domestic supply.
(v) Market Intermediaries and Hoarding: Inadequate regulation of middlemen and hoarding practices by traders artificially inflate food prices, affecting consumers.
Effectiveness of RBI’s Monetary Policy in Controlling Food Inflation
(i) Limited Impact on Supply-Side Inflation: “Monetary policy” mainly targets demand-driven inflation, whereas food inflation is largely supply-driven, limiting the RBI’s impact.
(ii) Delayed Transmission Effect: “Interest rate” adjustments by RBI take time to impact the economy, limiting immediate control over food price surges.
(iii) Global Price Influences: Global commodity price volatility, especially in oil and essential imports, can offset RBI’s policy impacts on domestic food prices.
(iv) Restricted Tools for Targeted Control: RBI’s monetary tools are broad and cannot selectively target food prices, which are sensitive to regional and seasonal factors.
(v) Inflation Expectations Management: RBI can moderate inflation expectations, but supply-chain measures are essential to tackle long-term food inflation effectively.
Suggested Complementary Policy Measures Beyond Monetary Policy
(i) Enhancing Agricultural Productivity: Investments in “irrigation,” technology, and high-yield crops can stabilize the food supply, mitigating inflationary pressures.
(ii) Strengthening Cold Storage and Logistics: Better “infrastructure” for storage and efficient transport reduces post-harvest losses, ensuring price stability for perishables.
(iii) Diversifying Import Sources: Strategic diversification of essential “food imports” can reduce vulnerability to global price shocks, supporting domestic stability.
(iv) Improved Market Transparency: Enhanced regulation of intermediaries, hoarding deterrents, and market information systems (e.g., “e-NAM”) ensure fair pricing.
(v) Creation of Buffer Stocks: Building and releasing buffer stocks during shortages can reduce food price spikes and ensure steady availability.
Conclusion
RBI’s “monetary policy” provides partial relief by controlling demand-driven inflation, but “food inflation” requires a balanced policy mix, including infrastructure, import diversification, and supply-side reforms.
