Manage food prices to contain inflation: RBI

Reserve Bank of India (RBI) Governor Raghuram Rajan on Tuesday sent out a strong message to the government — managing food situation was vital to contain inflation.

In its second bi-monthly monetary policy review, RBI said unseasonal rain and hail in March had hit rabi crops. It is expected food production in 2014-15 would have fallen five per cent compared to the previous year. Successive estimates indicate the situation could worsen, with damage to pulses and oilseeds. For these crops, there are no buffer stocks in the central pool, posing an upside risk to food inflation.

RBI said it was clear that contingency plans for food management, including timely release of stocks, should be in place to manage the impact of low production on inflation. Limiting the increase in agricultural support prices would also help control inflation, the RBI governor said. He noted in the past, there had been a correlation between high increases in the minimum support price (MSP) and high inflation, especially in the event of low production.

This year, input costs have not risen substantially, owing to low inflation and rural wage growth. Low MSP rises were likely to be proposed, Rajan said.

As of May 1, foodgrain stocks in the central pool stood at 59.13 million tonnes (mt), 44 per cent more than the required amount. Of this, rice accounts for 17.04 mt and wheat 34.12 mt.



Though the recent unseasonal rain had led to wheat production falling about five mt, it had no impact on purchases by the Centre, as the government relaxed quality norms. So far this season, 26 mt of wheat has been purchased.

To control food inflation, the government will have to effectively manage liquidation of stocks in the open market to ensure prices don’t surge in case of an impact of irregular rain on agriculture. In case of pulses and oilseeds,the effort should be to calibrate import and export duties to ensure substantial domestic availability. In the case of fruit and vegetables, the government should ensure retail supplies aren’t hit due to hoarding and black marketing.