Temporary spike in food inflation expected to stabilize soon, says Ramesh Chand

NITI Aayog member Ramesh Chand recently addressed rising inflation in India, particularly rising food prices that contributed to a 5.5% rise in the consumer price index (CPI). September.

He discussed the challenges surrounding food inflation, emphasizing the volatility of fresh vegetable prices, which are difficult to control due to weather dependence and limited trading options.

Chand suggested expanding the vegetable index beyond tomatoes, onions and potatoes to better reflect seasonal variations. Despite the concerns, he believes the rise in inflation is temporary and expects food prices to stabilize in the coming months.

Below is the verbatim transcript of the interview.

Q: The main reason I requested the interview is the way the consumer price index (CPI) numbers for September came out. It has jumped to 5.5% and the main reason is rising food inflation. The year-on-year (YoY) increase is 9.2% and even month-on-month (MoM), cereals, legumes and of course vegetables have increased a lot. Would you be concerned that this food inflation could persist?

A: Last month, it was less than 5.6% and all projections are that it will be less than 6%, but we have one component over which there is no control, and that component is fresh vegetables. First of all, you cannot have a reserve broth for vegetables.

Secondly, we have no commercial option for that. And thirdly, Indian consumers’ taste and preferences are so strong for fresh fruits and vegetables that they are not willing to use processed products as substitutes. These are the reasons and they are very vulnerable to weather related things.

I have suggested to the Reserve Bank of India (RBI), because they consult me ​​every two months before the Monetary Policy Committee (MPC) meeting, that right now the vegetable index is based entirely on this TOP: tomato, onion and potatoes.

I told them that they should increase this number to include other vegetables, maybe depending on the season, we should do it. But it happened in the case of vegetables.

In fact, if you look at the data from last year, July and August, the price of tomatoes had crossed $100 but this year it occurred at the end of September and beginning of October. It’s getting out of control. And it is not that there is no response on the ground. If you look at the area under these vegetables, it is increasing. So farmers are responding to high vegetable prices and although they know there is volatility, most farmers today are not risk averse. They are risk lovers. They want to take advantage of that opportunity. This is how it is happening.

I think that whatever needs to be done from the government side, as if there were a committee of ministers, they take it into account every two months. The RBI takes charge of this and the secretary’s committee meets every fortnight to take stock of the situation. So some effort is made.

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For example, if you go to Safal outlets, you will find that the price there will be 30-40% lower than on the open market. So I would say that the only solution in this type of thing is active intervention, so that a component that whenever there is a genuine shortage is taken advantage of by intermediaries. It’s not that they don’t exploit it later. So they try to take advantage of the situation. So that that component can be checked. And regarding your question, is it going to persist for a long time? I don’t think it’s going to persist.

Q: Even the Reserve Bank on monetary policy said we have to overcome this problem. So your expectation is that it will only be a month or two. But the concern is that yes, vegetable prices have increased by 3.5% month-on-month and 35% year-on-year. But cereals and legumes have also increased by around 0.7% month-on-month, or 1% month-on-month. Now, one thought that since the rains were abundant, in fact higher than the average for the long period, cereals and legumes would have been under control. They have been accentuated.

A: In the case of cereals, a lot of what you will see happen in the market is the translation of what we do to the MSP. If we increase the MSP by 6-5% and some small aggregate market factor reaches 8-9% and the MSP announcement is made in advance, it is not known whether the production will improve or not.

So you kind of go into a spiral where you don’t project this kind of very favorable effect of the monsoon. I have never seen in the history of the Commission on Agricultural Costs and Prices (CACP) that the price has been reduced by a very small amount from the high level of previous years. So if due to scarcity, the price of MSP increases in one year, that becomes a way to increase further in the next few years. And now we have a new formula, A2+FLx50%, I am not criticizing it, but that formula has led to a detachment between what the open market price would be and what the MSP is in most cases, not in all cases .

So, you simply discover that before this authority of the commission to take cognizance of what is happening in the country to demand and offer what is happening in the global market, taking into consideration those types of things, and based on what they used to give more or less. margin. That is no longer in the hands of the CACP. It has now become a more or less mechanical and formulaic exercise and as I mentioned, this is a very serious point I am making: if your A2+FL multiplied by 1.5 is not close to what the open market price will be , then you will find that advertisement. of the MSP bill continue to create inflation.

Q: So one more question before we move on to general expectations: oilseeds, due to the increase in import duties, we may have seen a 2.5% increase month-on-month, year-on-year it is not much, because last year the prices were still high. But the month-on-month increase is a bit worrying. Do you think it’s just out of duty and it will stagnate?

A: Even internationally, edible oil prices after falling for a long period of 7-8 months have increased to some extent, which I think is a correction. But since that correction was going to happen, and in the event that soybeans were reaching the market, farmers were getting a price lower than the MSP. Again, I would say that this MSP has now become a norm. I have written in it that I am not against MSP becoming something justified, which the farmer should get, as long as this MSP is based on the judgment of an authority that this farmer should get this. Now it is based on a formula.

This is my personal opinion. I am in the government. It’s difficult, but now I can confess to you that even when it was adopted, I sent a note saying that this kind of situation is likely to be created.

Now we have done it. We cannot reverse that process and I am aware that the farmer should get a better price. Our 80-90% farmers are small and marginal for many types of things. In these types of situations, we ultimately have to move towards a situation where we protect farmers’ incomes, but do not distort market prices. It’s feasible. China is doing it. The United States is doing it. Europe is doing it. They are doing it. They’re going for… like China, they need acquisitions. They opt for needs-based acquisitions. We have to run PDS and need something for reserve stock. So, in total rice and wheat, we procured 50 million tonnes, but now it is indefinite due to MSP.

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Ultimately, we should move towards the system of Bhavantar Bhugtan Yojana, or payment of deficiency prices to avoid distortions in market prices. The reason and consequences of this distortion will become increasingly serious in the future. Now we only face inflation.

The second consequence will be that when your house prices are so high, your exports will be affected. And India is moving towards a situation where the surplus is expected to increase, so it will become the second victim of this.

That is why I believe that it is now necessary to achieve a balance between the interests of the producer and the consumer. We need to increase farmers’ income. I support it, but we have to devise new instruments to do it. We should seek to avoid market distortions that are known to be costly to other sectors of the economy.

Q: It is a shorter-term question, not the broader policy that you raise. Do you think that food inflation will go down by December or the next quarter?

A: I feel that what we have witnessed this month is an abnormality. Definitely, this is my assessment, it will go down.

Q: So maybe the pain of high inflation will be short-lived, at least in terms of overall inflation.

A: But it should also lead us to realize that the government, even if they only read my note at that time, wanted to support the farmers, so they said, okay, we will accept this for the sake of the farmers. We want to promote this sector. So that happened after we adopted this kind of things, you see the increase in farmers’ income, my article has reached the agrarian crisis. We are not in that situation, but now we have to work on the instrument through which we guarantee the increase in farmers’ income.

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