The preoccupation with food inflation

Devinder Sharma

Food & Agriculture Specialist

SOMETIMES, I wonder how can a country poised to become the world’s third largest economy in a few years get rattled by a rise in prices of the ubiquitous aloo (potato) and pyaaz (onion). The occasional spike in the prices of vegetables, fruits, pulses and cereals has often been blamed for weighing heavily on the inflation outlook, forcing the Reserve Bank of India (RBI) to hold on to benchmark interest rates.

Several generations of the farming community have lived in poverty because of an outdated macro-economic design. To keep wages low, food prices have been kept low.

With the retail inflation rate, based on the Consumer Price Index (CPI), now down to 4.85 per cent, it is the retail food inflation that remains a cause for concern. At 8.5 per cent for March 2024, higher food inflation had left no room for the Monetary Policy Committee (MPC) to cut the repo rate in the first quarter of the 2024-25 financial year. Given the inflation matrix, the way it is working out, the caution with which the MPC takes a call is aimed at ensuring that inflation aligns with the RBI’s target of 4 per cent.

Since the CPI comprises the basket of goods and services consumed by an average urban and rural household, all eyes are on food inflation. An average household is actually impacted much more by the expenses it incurs on health, education and housing — the real drivers of inflation. Whether poor or middle class, every household ends up spending its lifetime savings (often backing it up with bank loans) on educating children, bearing the health expenses of the family and meeting the ever-rising cost of housing.

This is even reflected in the higher estimates for household debt, and the latest analysis by Motilal Oswal Financial Services points to a new high of 40 per cent of the GDP in December 2023. Surely, the growing financial stress necessitating the need for bank loans is not because of the skyrocketing food bill but is an outcome of the ever-increasing spending on health, education and housing. With more or less stagnant incomes (rural wages have barely risen in the past 10 years), a record jump in unsecured personal loans is also being seen. While the Finance Ministry sees the rise in personal loans as an indication of growing aspirations, many regard it as a sign of rising distress. Nevertheless, the latest RBI estimates also point towards declining net financial savings to 5.1 per cent in 2022-23, the lowest in almost five decades.

In a country where the average kitchen expenses of a household are between Rs 10,000 and Rs 20,000 per month, a surge in prices of vegetables can increase the monthly food budget of the middle class by around

Rs 1,000 (or at the most Rs 2,000), and yet it sets the alarm bells ringing. With the media driving home the need to tame food prices, the RBI swings into action to ensure that food inflation remains confined to the limits. But I see no reaction when media reports highlight the rising cost of houses under construction in cities. In Patna, the prices have doubled in the past five years, and risen by approximately 50 per cent in cities like Lucknow and Bhopal. In any case, every 11 months, the house rent increases by an average of 10 to 15 per cent.

Earlier, a study by an independent policy think tank, the Centre for Social and Economic Progress, had worked out that house prices in the country had shot up by 15 times over the past three decades. Given the high base level, the actual cost, in absolute terms, that any buyer ends up paying for the house is whopping by any standard.

An influencer writing on micro-blogging site X says: “My son is in Grade 3 in a reputed CBSE school in Gurugram. The school fee is Rs 30,000 per month (excluding bus transport).” Another person says: “My friend’s daughter is in an international board school in Bengaluru in Class II and her fees is Rs 8 lakh per annum, including food and transportation. With an increase of 10 per cent every year plus additional charges, the per annum fees when she reaches Class XII will be Rs 35 lakh.”

The average overall cost of schooling a child (from the age of 3 to 17) in a private school in India is nothing short of Rs 30 lakh. Add to it the cost of higher education, and most families end up spending their lifetime savings on giving their children the best education. Higher education costs top the inflation chart. Top B-school fees, for instance, have risen by an alarming 400 per cent since 2007.

A few days ago, a minister in Uttar Pradesh accused a private hospital in Lucknow of charging Rs 4 lakh for the four-day hospitalisation of his ailing mother. Appalled at receiving a hefty medical bill, he shifted his mother to a public sector hospital. “If it is so expensive for a minister to get treatment for his mother in a private hospital, imagine the fate of the ordinary citizen,” he told a TV channel.

In any case, it has been ascertained that increasing healthcare needs, coupled with high out-of-pocket expenditure, are among the major reasons for perpetuating poverty. The National Health Authority portal itself acknowledges that every year, higher health costs push nearly 6 crore Indians into poverty.

And yet, mainline economists remain stuck on food inflation. With a weightage of 46.48 per cent for urban areas and 53.52 per cent for rural ones in the consumption basket, the index for food inflation is very high. In contrast, the weightage ascribed to health is 5.89 per cent, education 4.46 per cent and housing 10.07 per cent, even though these constitute the biggest economic burden on any family.

Several generations of the farming community have lived in poverty because of an outdated macro-economic design. To keep wages low, food prices have been kept low. This has to change. After all, how long can we keep farming deliberately impoverished? Farmers, too, need economic freedom.

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