Opinion Food inflation dips but that isn’t enough

Sowing of rabi crops — wheat, mustard, chana, masoor and maize, among others — has been brisk, with farmers planting nearly 10 per cent more area so far this time compared to last year. The main driver is the surplus rainfall from an extended southwest monsoon that has helped fill up reservoirs, recharge aquifers and bolster soil moisture. Also, farmers who suffered crop losses from excess rain during the kharif season are seeking to make up for it in rabi. The hike in the government’s minimum support prices (MSP), especially for wheat, has further boosted their enthusiasm. With the World Meteorological Organisation predicting a 55 per cent chance of a “weak” La Niña, which could result in a colder and longer winter, the rabi crop prospects appear bright.

That is great news from a food inflation standpoint. The high retail food inflation, from mid-2023 through 2024, had significantly eroded household purchasing power and consumption spending. An easing of those pressures has, along with the income tax and GST rate cuts this fiscal, led to a revival in sentiment and also enabled the RBI to cut its key policy lending rate from 6.50 per cent to 5.25 per cent since February. A bumper rabi harvest and the turnaround even in commodities such as wheat and sugar, which were facing a tight supply situation, should ensure no fresh spike in food prices.

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The flip side to food inflation being in negative/low single-digit territory since April, however, is the impact on farm incomes. Official GDP data shows the gross value added for agriculture growing by 3.7 per cent year-on-year in April-June and 3.5 per cent in July-September 2025 at constant prices. But the corresponding growth rates at current prices have been lower at 3.2 per cent and 1.8 per cent, implying deflationary pressures. Extreme price volatility is in the interest of neither producers nor consumers. Just as high food inflation upsets household budget calculations, deflation discourages farmers from planting and making long-term investments in technology and land improvement. The large swings in farm prices are also a manifestation of the absence of reforms. Unlike in the industrial, financial and other services sectors, these have eluded and bypassed agriculture.