Rising global food prices in 2011 are likely to have greater repercussions on India’s economic growth in 2012 than the current year, unlike countries like Singapore, says a report from the Asian Development Bank (ADB).
However, economists say non-food prices are a much greater problem now than food prices in India. “In India, Indonesia, and Malaysia, in particular, the adverse effect of the increase in global food prices in 2011 tend to take a larger toll on GDP growth in 2012 rather than 2011,” the Manila-based bank said in a report on Global Food Price Inflation and Developing Asia.
It attributed this to time lag on the effect of adjusting to exogenous shock in food prices.
The report says worldwide food prices have risen by an average of 31.2 per cent in the first two months of 2011 compared to year-ago levels. As such, the report looks at the effects of a 30 per cent average increase in the global prices of food in 2011 from the 2010 level. The report also assumes the food price shock is temporary and hence assumes 5 per cent decline in global food prices in 2012.
The report also said economic expansion in Singapore is estimated to contract the largest in 2011 by 0.6 percentage points in the region on account of expected steep declines in its private consumption and fixed investment growth.
Crisil chief economist D K Joshi, however, said food price inflation would be muted this year in India, compared to past two years. If that does not happen, it would be disastrous, he added. The bigger worry, now, is non-food price inflation, Joshi said adding the impact on GDP would come through RBI tightening monetary policy.
India measures economic growth from fiscal point of view. For 2010-11, Indian economy is estimated to have grown by 8.6 per cent and the government expects Indian economy to grow by 9 per cent this financial year. The figures for 2012-13 is not projected as yet, but the planning commission is likely to peg economic growth in the range of 9-9.5 per cent a year on an average for the 12th five year plan, which will start from next financial year.
The report shows the global rise in food prices would take away over 0.6 per cent of GDP in India in 2012 against around 0.1 per cent this year.
The study also shows if global fuel prices are also assumed to be rising by 30 per cent coupled with the same percentage rise in international food prices, Indian GDP will be reduced by around 0.8 per cent this year and over 1.3 per cent next year.
Said Joshi, it depends on where oil price settles. If it settles at $90-100 a barrel, it would not affect GDP growth, but if it goes beyond that, it would be biting. Indian basket of global crude prices is hovering around $120 a barrel.
