Unpredictable weather patterns, particularly the driest August in more than a century, have caused food inflation in India, a major participant in international agri-trade, to soar beyond 11%.
Onions have increased in price by a quarter since June on the domestic market, just as tomato costs are starting to decline. Additionally, the basic dal (lentil soup), which is made from pulses, is now about 20% more expensive than it was at the beginning of the year.
Some analysts claim that India has a “curry problem” because the price of a typical vegetarian lunch increased by a third in the month of July alone.
The Indian government has jumped into action, unleashing a series of measures to curb food inflation in anticipation of some important state elections this year and a significant general election next summer.
In May 2022, India declared a ban on the sale of wheat; this month, it abruptly stopped exports of non-basmati white rice. More recently, in an effort to reduce exports and boost domestic supplies, the finance ministry placed a 40% levy on onions.
Rajni Sinha, chief economist of CareEdge Group, claims that since sugar production is predicted to be lower this year, “the likelihood of a ban on sugar exports has also increased.”
According to commentators, the government may increase its response coming forward with further measures. For instance, the government “could seek a more comprehensive ban” given that the repeated export limits on rice have not yet reduced domestic rice price inflation, according to a recent note from global brokerage Nomura.
Does India run the risk of importing global food inflation with its zealous defense of indigenous prices?
It does, according to the International Food Policy Research Institute (IFPRI), especially with rice, sugar, and onions. India has been the world’s greatest exporter of rice over the previous ten years, with a 40% market share, and the second largest exporter of sugar and onions.
The price increase in the Indica variety of rice, whose exports India has restricted, was largely responsible for the 2.8% increase in the FAO Rice Price Index in July, which reached its highest level since September 2011. According to the FAO, this has increased the “upward pressure” on the pricing of rice from other regions.
According to Joseph W. Glauber, senior research researcher at IFPRI, “Thai rice prices have increased 20% since the ban was announced late last month.”
The consequences of this might be disastrous, especially for the world’s poor, as food insecurity worsens in the 18 “hunger hotspots” recognized by the FAO and UN World Food Programme.
Millions of people in Asia and Africa consume a significant portion of their daily caloric intake from rice, which is a staple food. And a significant supplier to these markets is India.
According to IFPRI, 42 countries in Asia and Sub-Saharan Africa import 50% or more of their total goods from India; in some cases, this percentage rises to 80%. This percentage cannot be “easily substituted” with imports from other significant exporters like Vietnam, Thailand, or Pakistan.
According to Upali Galketi, senior economist at the FAO’s markets and trade division, high food inflation could also have other effects in these nations by keeping food import costs high, requiring the use of valuable foreign currency, “worsening balance of payment problems and contributing to inflation.”
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However, India’s activities alone cannot be held solely responsible for the rise in food inflationworldwide. Other significant contributing factors include the end of the Black Sea Grain Initiative following Russia’s invasion of Ukraine and the harsh climatic conditions seen worldwide.