FROM SURPLUS SHOWERS TO STABLE PRICES: A CRITICAL APPRAISAL OF INDIA’S FOOD-INFLATION DYNAMICS

THE CONTEXT: India’s headline consumer price index (CPI) eased to 2.10 percent in June 2025, its lowest point since January 2019, while the consumer food price index (CFPI) slipped –1.06 percent year-on-year. The United States and the United Kingdom registered 2.7 percent and 3.6 percent respectively, underlining the unusual divergence created by India’s agricultural and policy tailwinds.

THEORETICAL FRAMEWORK:

• • A food-priced economy such as India’s exhibits cost-push inflation, where exogenous shocks to primary food prices seep into non-food through wages and transport costs.
  • The acreage swings—soybean growers shifted to maize in 2025 because 2024 soybean prices crashed below MSP, illustrating lagged supply response.
  • ultra-low food prices, while urban-friendly, erode agricultural surplus, necessitating a calibrated farm-support architecture.

HISTORICAL TRAJECTORY OF FOOD INFLATION (2019-25):

• • Between late 2019 and mid-2023 food inflation oscillated within the 4-6 percent corridor, punctured by pandemic logistics shocks and a once-in-a-generation edible-oil super-cycle.
  • A heat-induced wheat shortfall in 2023-24 propelled food CPI above 7 percent. The tide turned after the 2024 southwest monsoon delivered rainfall 7.6 percent above the long-period average (LPA), replenishing aquifers and boosting both kharif and rabi output; the favourable base has since snowballed into the current disinflation.

DRIVERS OF THE CURRENT DISINFLATION:

• • Twin good monsoons. The India Meteorological Department reports cumulative rainfall 1 percent above normal as on 20 July 2025, with early onset (24 May) improving soil moisture before sowing.
  • Buffer-stock rebuild. Wheat procurement in April-June 2025 reached 7–30 million tonnes (MT), pushing central-pool wheat to more than 36 MT against a July norm of 27.6 MT; rice stocks touched an unprecedented 63 MT, giving the Food Corporation of India (FCI) the elbowroom to run open-market sales without jeopardising the public distribution system (PDS).
  • Trade-policy levers. Since May 2025 India has:

• • • cut the effective import duty on crude palm, soybean and sunflower oil to 16.5 percent,
    • extended zero-duty windows for pigeon-pea (arhar), black-gram (urad) and yellow/white peas until March 2026, and
    • capped masoor and chana duties at 10 percent.

• • These actions subdued domestic prices despite a global firming in vegetable-oil futures.

PERSISTING VULNERABILITIES:

• • Late-season monsoon breaks could lop 4-6 percent off kharif yields; IMD assigns a 22 percent probability to an August break phase.
  • Phosphatic fertiliser squeeze may push DAP retail prices above the ₹1,350/bag MRP if subsidies are not topped up.
  • Structural import dependence in oils and pulses exposes India to exchange-rate swings and Black Sea logistics shocks.
  • Buffer-stock carrying cost already exceeds ₹18,000 crore per annum; aggressive offtake is fiscally prudent but politically fraught.
  • Climate volatility trend (rapid alternation of deluge and dry spells) shortens the planning horizon for smallholders, intensifying credit risk.

POLICY ARCHITECTURE IN INDIA:

MACRO-POLICY IMPLICATIONS:

• • Sub-2.5 percent CPI keeps real policy rates positive by 250 bps, giving the Reserve Bank of India space to pivot from disinflation to growth; a 25–50 bps repo cut in October 2025 is credible if food prices stay benign.
  • On the fiscal side, trimming buffer stocks by 5 MT could save ₹4,000 crore in storage expenses, partially offsetting fertiliser-subsidy overruns triggered by costlier DAP.

CENTRE–STATE & GOVERNANCE DIMENSIONS:

• • Effective food-price management is a federal exercise. States that have adopted the Model Agricultural Produce and Livestock Marketing (APLM) Act, 2017 plus integrated e-NAM report lower arrival-to-farmgate spread (Punjab 6 percent vs Bihar 12 percent).
  • Expanding WDRA-certified scientific warehousing can reduce wastage; only 34 million tonnes of private storage is WDRA-linked against an agri-output of more than 300 MT.

SCENARIO ANALYSIS – IF AUGUST–SEPTEMBER RAIN FALTERS:

• • A 7 percent yield shock in kharif paddy could push retail price inflation to 4 percent; timely FCI off-take of 5 MT would neutralise the impact.
  • Pulses price index could rise 18 percent; releasing Price Stabilisation Fund to buy 0.3 MT tur at harvest would anchor expectations.
  • Edible-oil CPI is most elastic; a 10 percent tariff-rate quota (TRQ) cut could soften prices within six weeks, based on 2022 experience.

ETHICAL & SOCIO-ECONOMIC LENS:

• • Low food inflation lifts real wages and enhances nutrition security for the bottom quintile, reinforcing Sustainable Development Goal 2 (Zero Hunger).
  • Yet persistent price suppression can aggravate the agrarian income gap, fuelling distress migration and undermining SDG 10 (Reduced Inequalities). A golden mean of stable yet remunerative prices is, therefore, a governance imperative.

THE ISSUES:

• • Over-concentration in two cereals: Wheat and rice comprise 83 percent of procurement, narrowing dietary diversity.
  • Import-addicted oilseed complex: Despite NMEO, acreage stagnates because MSP remains below import-parity for oils; the rupee depreciation risk looms.
  • Fertiliser subsidy design: Flat subsidy decoupled from nutrient content skews usage towards nitrogenous fertilisers, depressing yields in the long run.
  • Data opacity: Real-time mandi price feeds cover only 450 of 2,700 principal markets; policy response is handicapped by a three-week lag.
  • Climate volatility: Frequency of more than 50 mm one-day rain events is up 35 percent since 2000, stressing drainage-prone crops such as pulses.
  • Logistics bottlenecks: Only 17 percent of rural roads are all-weather surfaced; transport delays inflate farm-to-retail margin, muting the pass-through of deflationary supply.
  • Buffer-stock politics: Periodic export bans erode farmer trust and disincentivise productivity-enhancing investments.

THE WAY FORWARD:

• • Institutionalise a counter-cyclical tariff band for edible oils and pulses that rises when domestic prices crash and falls during shortages; a rule-based system prevents ad-hocism and retains farmer confidence.
  • Cluster-based oilseed push: Bundle high-oleic sunflower with assured buy-back contracts via cooperatives like GCMMF; risk is shared, uptake accelerates.
  • Scale Price Stabilisation Fund to ₹10,000 crore and extend automatic procurement to pulses, ensuring quick harvest-time support without chronic MSP outlay.
  • Lock-in two-year phosphoric-acid supply deals with Gulf producers in rupees, insulating DAP prices from dollar volatility and Chinese export quirks.
  • Deploy an Agri-Weather–Price Nowcast dashboard on the Kisan Sarathi app, combining IMD, ISRO and e-NAM feeds for real-time release decisions.
  • Phase-in 10 percent millets into NFSA rations by 2027, diversifying diets, easing water stress and trimming wheat-rice surplus.
  • Universalise electronic warehouse receipts, enabling small traders and FPOs to secure bank credit at 2 percent below MCLR, preventing distress sales.
  • Introduce variable MSP linked to five-year moving average of global prices for soybean and sunflower, moderating fiscal outgo while signalling market reality.
  • Contract out farm-gate cold-chain under PM Gati Shakti with viability gap funding, reducing perishables’ spoilage that currently runs above 14 percent.
  • Set up a Pulses & Oilseeds Research Council under ICAR with African collaboration, focusing on early maturing arhar (120-day) and ultra-high-oil mustard, creating home-grown import substitutes.

THE CONCLUSION:

India’s current spell of low food inflation is a monsoon dividend amplified by nimble trade policy, but the comfort is fragile—dependent on imported nutrients, favourable rainfall and prudent buffer-stock management. Structural diversification, smart buffers and rule-based trade tools are pivotal to lock in price stability while safeguarding farm incomes and nutritional outcomes.

UPSC PAST YEAR QUESTION:

Q. 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. 2024

MAINS PRACTICE QUESTION:

Q. Discuss how domestic supply-side management and external trade policy have interacted to moderate food inflation in India since 2024.

SOURCE:

https://indianexpress.com/article/explained/explained-economics/explained-why-food-inflation-may-remain-low-10138792/