Govt prepares for Rs 10,000 crore war chest to fight food inflation

Within the whole inflation basket, food inflation has been stubbornly high

Union Finance Minister Nirmala Sitharaman in her Budget speech on Tuesday said steps were being taken to supply adequate perishable goods to markets, while stating inflation continued to be low and stable, and was moving towards 4 per cent.

Food inflation has been stubbornly high.

Between July 2023 and June 2024, the food inflation rate, as measured by the consumer price index-combined, has hovered in the range 6.6-11.5 per cent.

An inadequate monsoon last year, followed by weak post-monsoon rain due to El Nino, has been held as one of the main causes of high food inflation.

To address this, the Budget has made two provisions, one for the Department of Consumer Affairs and the other for the Department of Food and Public Distribution.

 

For the Department of Consumer Affairs, an allocation of Rs 10,000 crore has been made for the Price Stabilisation Fund.

The fund, the Budget documents say, will be used for maintaining a buffer stock of pulses, onions, and potatoes and sending sufficient amounts to markets.

The fund was started in 2014-15 under the Ministry of Agriculture to help regulate price volatility in important agricultural and horticultural commodities like onion and potatoes. Pulses were added later.

However, on April 1, 2016, the fund was transferred to the Department of Consumer Affairs.

The fund provides for maintaining a strategic buffer of commodities for subsequent calibrated releases to moderate price volatility and discourages hoarding and unscrupulous speculation.

For building such a buffer, it finances agencies to directly purchase from farmers at the farm gate or mandi.

The provision of Rs 10,000 crore for FY25 is among the highest in recent times.

Before FY25, the largest expenditure through the fund was Rs 11,135.30 crore in FY21, the Budget documents show.

The Budget fine print shows the fund will be used to stabilise the prices of pulses.

The target for pulses is to keep their average retail prices within a range calculated based on the highest and lowest monthly averages between 2018-19 and 2022-23.

Similar formulae are being worked out for onions.

That apart, another entry in the Budget of the Department of Food and Public Distribution shows loans for food storage and warehousing have been doubled to Rs 50,000 crore from around Rs 25,000 crore in the Revised Estimate of FY24.

It could be said that this provision is for creating infrastructure to check spoilage.

The food subsidy, all of which is now expected to be under the Pradhan Mantri Gareeb Kalyan Ann Yojana and is estimated to be around Rs 2.05 trillion, could also be said to ensure cheap grain to a majority of Indians.

The subsidy, which had climbed to around Rs 2.90 trillion in 2021-22, has been declining since then. It has reduced due to lower holding stocks and smart liquidation under the Open Market Sales Scheme.

As of July 1, 2024, wheat stocks in the central pool are estimated to be around 29.90 million tonnes, which is just 0.80 per cent less than in the same period last year. Rice stocks are 32.61 million tonnes, which is 28.6 per cent more than in the same period last year.