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Food Inflation

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Food Inflation

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India has developed at a very fast rate since independence, as compared to rest of the developing nations. Before independence famine was one of the features of life of Indians. India witnessed the great famine of 1876-78. This 2 year period was one of the darkest years of Indian history. The great famine caused mayhem and distress to 58, 500, 00 people across the country.  

 
Since Independence a lot has changed. Famine doesn’t exist anymore in India. Figures of GDP enable India to stand amongst the Rich counties of the world. Today, it is self sufficient in food grain’s production. Yet the grass root reality is very appealing and seeks immediate attention.
 
Although famine doesn’t exist anymore, yet for many it does exist under the name of Food Inflation. There are several thousand people in the county who die out of starvation due to food inflation. It is a major challenge for “India in 21st century”. 
 
Food inflation in simple terms refers to the rise in general prices of food items over a period of time. When the price of food articles increases than, each unit of currency buys fewer goods.
 
Inflation is estimated by calculating the inflation rate of a price index, generally the Consumer Price Index. The Consumer Price Index measures prices of a selection of goods and services bought by a typical consumer. The inflation rate is the percentage rate of change of a price index over a period of time.
 
For illustration, in January 2010, the Indian Consumer Price Index was 202.416, and in January 2011 it was 211.080. Then formula for calculating the annual percentage rate inflation in CPI over the period of 2010-11 is given by-
 
 
 
The rate of inflation for the CPI in this one year period would be 4.28%, which means that the general level of prices for typical Indian consumers rose by 4% (approx.) in 2011.
 
The sense of concern is that the income of general public remains constant as compared to rate of inflation which keeps on increasing at a very fast pace. 
 
There are several reasons for this high rate of inflation- 
 
Crisis in agriculture sector
 
Indian agriculture sector is in crisis despite several measures taken by the government from time to time. The country is definitely not producing enough to cater the needs of a growing population due to several reasons such as poor technology, poor irrigation system, regional backwardness etc. Food inflation is the direct result of triad of late monsoons, drought and flood in several regions of the country every year. Consequently, Kharif output decreases year by year, with steep decrease in production of food grains, pulses, and oil seeds.
 
Down the line, the appealing grass-root reality is that more than 2.5 lakh farmers have committed suicide over past 1 and a half decade. 
 
Inadequate Storage Infrastructure
 
India’s food storage infrastructure is very poor. Every now and then we witness media coverage on rotten food grains kept in open space. The quality of food storage infrastructure of the country needs to be improved. The current infrastructure is suitable to keep the food grains of very small quantity and that too for only a few months. This holds truth for semi-perishable and perishable foods. This is the major reason why the surplus production of any year can’t be used in the next year in case of shortfall in production.  
 
Constraints in importing food items
 
In case of shortfall in meeting the demand of the population, import of food items is a widely used method to meet the needs of the public. This theory works fine in case of edible oil where country’s demand is much higher than its production and the international edible oil market is quite big. But in case of food items like pulses, the global market is abysmal as compared to the increasing demand of pulses. It must be noted that India already imports 30% of the total pulses that are traded on the international front. 
 
Hoarding
 
Another reason for the spurt in the prices of specific food items is hoarding. Hoarders create artificial shortages at a time when there is no actual shortage of food items and thus fleece people from time-to-time, to meet their selfish motives.
 
Growth of big corporates in food market
 
The growth of big corporates in the food market has apparently weakened the government’s control over food prices. The latest figures indicate that the share of corporate retail in food distribution has tripled over the past four years. Also the PDS has been weakened significantly. In most of the states, the role of state agencies like the NAFED, the ration shops and consumer cooperatives in food distribution, has gradually gone down. Hence, the profit margins of private traders have increased, resulting in high rate of food inflation. 
 
Increase in demand & low Productivity
 
Food demand in a nation like India gradually grows with time. Ideally, in order to maintain pace with the growing population, food production must also grow. However, the fact is that, in India, food production lags far behind than growth of population. 
 
In the year 2008-09, annual per capita cereal availability in India remained at around 165 kg, which was similar to annual per capita cereal availability in 2000-01. Notably, annual per capita cereal availability in India fell down to 161 kg in the year 2009-10, despite high GDP growth observed in the same year. Hence, it can be clearly observed that food consumption for the Indian population is certainly not witnessing any rise, which is due to low productivity.
 
Let us try to understand what the reality is- What is actually happening is that the income and cereal consumption growth is getting disproportionately concentrated within the 10 to 15% of the population who are rich and who are benefiting from GDP growth. For the rest of the Indian people, ironically consumption levels are getting squeezed. If 77% of the Indian population spends less than Rs.20 per head a day as stated by the Arjun Sengupta Commission report, it is well imaginable what the consumption level of the majority of Indians is.
 
As a result inflation has a great impact on the living standards of the public. This is the reason why widespread hunger and malnutrition prevails in India. India continues to be a shelter to over 25% of the world’s hungry population which is estimated to be above 925 million people by the UN World Food Programme. Almost half of Indian children under the age of three years remain malnourished, as per the National Family Health Survey. 
 
High and unpredictable food inflation rates are also harmful for a nation’s economy. They lead to inefficiencies in the market, making it difficult for the companies to budget and plan long-term strategies. Uncertainty about the money’s future purchasing power also discourages investment and saving.
 
Food Inflation does not only affect the economy and living standard of the people of a nation but it can also prove to be a threat for the working of government. Food Inflation may lead to massive demonstrations and revolutions. For instance, food inflation is considered as one of the major reasons that led to the 2010–2011 Tunisian revolution and the Egyptian revolution in 2011, according to many observers such as Robert Zoellick, president of the World Bank.
 
Food inflation is indeed a great challenge in front of India. We can not build a prosperous nation with merely high figures of GDP trying to overshadow thousands of death due to food inflation. 
 
For such topics of Basic understanding on the subject matter which will keep you motivated to crack  CAT 2011, NMAT, Feb.MAT2012, XAT, CMAT 2012 along with various other MBA entrance tests. This would also be useful for extempore speaking , GD, Essays. Please keep on visiting www.mbarendezvous.com Portal with Management by objective approach.
 

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