MOST EXPECT the RBI’s monetary policy committee to slash interest rates in its review meeting Thursday. Bond markets also reflect this expectation: On Friday, yields on the benchmark 10-year government paper fell to 7.03 per cent, the lowest since November 25, 2017.
But there’s an elephant in the room: food inflation.
Between December 2018 and April 2019, annual wholesale price inflation for food articles has risen from minus 0.42 per cent to 7.37 per cent. During the same period, the year-on-year increase in the consumer food price inflation — which is what the RBI tracks — has been much less, from minus 2.65 per cent to 1.10 per cent. However, the underlying trend of food prices firming up after a long gap seems clear, with the southwest monsoon’s delayed onset only adding to the uncertainty.
The last two-three months have seen prices of a host of farm commodities go up, mainly on the back of drought in large tracts of western and southern India. Pre-monsoon rainfall during March-May was 24.7 per cent below the normal average for this period, with the deficit largely concentrated in these two regions.
Prices of maize in Karnataka’s Davangere market are now averaging around Rs 2,000 per quintal, compared to Rs 1,270 a year ago, while bajra (pearl-millet) and jowar (sorghum) are trading at Rs 2,000 (Rs 1,140) and Rs 1,900 (Rs 1,160) in Rajasthan’s Chomu and Maharashtra’s Jalgaon mandis, respectively.
No less has been the surge in pulses — from Rs 3,650 to Rs 5,950 per quintal for arhar (pigeon-pea) in Latur, Maharashtra; from Rs 4,600 to Rs 6,000 for moong (green gram) in Nagaur, Rajasthan; and from Rs 2,950 to Rs 4,100 for urad (black gram) in Tikamgarh, Madhya Pradesh.
“Urad and moong are short-duration crops (of 60-70 days and 80-90 days, respectively) and mostly sown in June. If the rains aren’t good this time, farmers may not choose to plant. They would, instead, opt for more long-duration (160-180 days) crops such as arhar and cotton, whose sowing window extends till the second or even third week of July,” says Nitin Kalantari, CEO of Kalantary Foods, a leading Latur-based dal miller-cum-trader.
The India Meteorological Department (IMD) Friday retained its earlier forecast of the monsoon setting over Kerala only around June 6, as against its normal date of June 1. More significant, though, was its warning of the current weak El Nino conditions — an abnormal warming of the equatorial eastern Pacific Ocean waters, known to adversely impact rainfall in India — “likely to continue during the monsoon season (June-September)”.
EXPLAINED | How food prices lost their bite
While there is “some possibility” of these turning to “neutral” during the latter part of the season, the uncertainty over rains in June — the IMD expects the monsoon precipitation to be 95 per cent of its long-period average during July and 99 per cent in August — makes the RBI’s job not that easy. This is more so, given that food and non-alcoholic beverages have a 45.86 per cent weight in the official consumer price index.
The upward pressure on prices is also being felt in dairy and horticultural produce. Liquid milk retailers such as Amul and Mother Dairy raised prices by Rs 2 per litre immediately after the Lok Sabha election results were out, following a dip in procurement from farmers, who are experiencing a severe fodder and water shortage in addition to rising costs of maize, molasses, de-oiled rice bran, cottonseed oilcake and other cattle-feed ingredients.
Skimmed milk powder prices, too, have climbed from about Rs 160 to Rs 240 per kg since October. Wholesale prices of tomatoes have crossed Rs 2,100 per quintal in Kolar, Karnataka from Rs 500 a year ago, while touching Rs 1,200 (Rs 850 last year) for onion in Maharashtra’s Lasalgaon market.
The Narendra Modi-led NDA government, in its first term, was proactive in controlling food inflation through “supply management” measures that included imposition of stockholding limits, banning exports and allowing unlimited duty-free imports.
It may not be inclined to similar hawkishness now, particularly with farm sector growth slowing to low single-digits even in nominal terms. Growth in gross value added from agriculture, forestry and fishing at current prices unadjusted for inflation fell to 2.07 per cent in October-December 2018, the lowest for any quarter in 14 years (see chart).
Whether the RBI, too, would be inclined to ignore the return of food inflation — and view it more as a necessary price correction in favour of farmers — will be known on June 6.