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| Lower production and high MSP keep food prices high |
| Devika Banerji / New Delhi May 16, 2009, 00:45 IST |
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An analysis of price movements in the past three months reveals a handful of food products such as cereals, pulses and sugar have kept the headline inflation rate, earlier predicted to go below zero by April-end, in the positive terrain.
Experts cite untimely rains in the first week of April in North India that reduced output of some crops, coupled with higher Minimum Support Prices (MSP) as reasons for higher food inflation, even as overall inflation has come down sharply in these three months.
Economists had predicted that inflation based on the wholesale price index (WPI) would enter negative territory because of the “high base effect”, as it was during this time last year that the rate increased at a fast pace.
Last year, from under 8 per cent in April, the rate went past 12 per cent by July. This led to the high base, as current year prices are compared to last year’s numbers to get the rate.
An analysis of the rise in 10 food products in WPI reveals that items like cereals, pulses, vegetables, rice and sugar have constantly been around double-digits in the past three months.
Many items showed a marginal decline for two months (February and March), but prices started rising again in April, keeping the inflation for all commodities in the positive territory.
Untimely rains in the first week of April in North India have harmed standing crops, especially pulses and coarse cereals like jowar and bajra, before they were harvested, analysts said.
This led to lower production of pulses and coarse cereals by 4 per cent and 9 per cent, respectively, leading to increase in prices. Production of wheat has also seen a drop of around 1.2 per cent, to 78.57 million tonnes in 2008-09, according to the government’s third advance estimates.
For crops which have seen good production this year like rice, the prices have been driven up by a high minimum support price (MSP). The MSP for rice and wheat were increased by 17 per cent and 77 per cent, respectively.
“The production of some crops like rice has been good this season. However high MSP of crops have pushed up the inflation rate,” confirmed DK Joshi, an economist with Crisil India, a ratings and research agency. As for sugar prices, on the rise since January, these started showing a downward trend in March. However, this got reversed in April.
The major reason is an estimated 10 per cent decrease in sugarcane production, resulting in a demand-supply imbalance. India is the world’s second largest consumer of sugar.
Sugar prices are expected to come down now, with the government allowing duty free import till September. “I think sugar prices will eventually be arrested. I don’t see a further high to it, because of the import duty cut,” said Sumita Kale, an economist with Indicus Analytics.
Inspite of food prices being constantly high, some still maintain that eventually the inflation rate will go into the negative territory.”It will happen in the first half of this year itself,” Joshi added.
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