EDITORIAL 1: Relief from food inflation
Context
At 2.1% year-on-year, India’s consumer price index inflation in June was below the 2.7% of the United States and 3.6% of the United Kingdom. That gap was wider in food, with the annual price increases at 3% for the US, 4.5% for the UK and minus 1.1% for India.
A huge relief
- Both overall retail and consumer food inflation falling to their lowest since January 2019 is a huge relief, especially for the Reserve Bank of India.
- The country’s central bank was, at least till six months ago, struggling to rein in inflation and, hence, unable to cut its policy interest rates.
- Much of it was courtesy of food, where India experienced sustained high inflation from roughly mid-2023 to the end of 2024.
- That ended with a surplus monsoon in 2024, translating into bumper crops. As the market arrivals of these crops – kharif plus rabi – picked up, food inflationary pressures eased from early 2025 and slipped into negative in June.
Cereal comfort
- The effects of favourable soil moisture and replenished groundwater as well as reservoir levels from abundant rainfall – 7.6% above the historical average or “normal” for the 2024 monsoon season were best seen in wheat.
- Wheat stocks in government godowns last year on July 1, at 282.61 lakh tonnes (lt), were at their lowest for this date since 2008 and just above the minimum buffer of 275.80 lt.
- The government has enough stocks to feed the public distribution system and also offload in the open market for cooling down prices. This wasn’t the case till a few months ago.
Monsoon relief
- The monsoon set in over Kerala on May 24, eight days before the normal date. Rainfall in May was a whopping 106.4% above the country’s long period average (LPA) rainfall for the month.
- Cumulatively, all-India rainfall during June 1 to July 20 has been 7.1% above its historical normal for this period.
- Almost all states/regions – barring Telangana, Andhra Pradesh, Bihar, eastern Uttar Pradesh, Marathwada, Assam, Meghalaya and Arunachal Pradesh – have received above-par rains.
Kharif Crop Patterns and Prices
- Despite a second consecutive good monsoon boosting overall kharif sowing, farmers have reduced acreage under arhar (pigeon pea), soyabean, and cotton.
- This shift is driven more by low market prices than water shortage.
- Arhar and soyabean prices remain below government-declared MSPs, while cotton area has declined due to pest issues.
- Farmers are turning to more profitable and shorter-duration crops like maize and moong.
- However, reduced domestic production of pulses and oilseeds is unlikely to fuel inflation, as imports remain high and duties low, keeping prices in check.
Fertiliser shortfall
- Although the monsoon has had a great start, one cannot rule out its weakening or stalling in the coming weeks.
- The early rains, extending through July so far, have basically given a boost to kharif plantings.
- Any prolonged break phase hereon can affect the vegetative growth – the development of roots, stems and leaves – of the already sown kharif crop.
- But a bigger source of uncertainty could be fertilisers, the demand for which has shot up on the back of the monsoon’s timely advance.
- China’s export restrictions have led to a global supply squeeze, particularly in phosphatic fertilisers, reflected in landed prices of imported DAP into India soaring from an average of $525 in June 2024 to about $810 per tonne now.
Conclusion
Whether these shortfalls will have any impact on crop yields remains to be seen.