Sufficient foodgrain stocks may prevent high inflation: report

Despite poor monsoon, sufficient foodgrain stocks may prevent a high inflationary situation this year, said a commodities broking firm.

"Poor rainfall this year can have an obvious impact on food prices, thereby impacting inflation. However, India has some respite in the form of comfortable levels of food grain stocks," broking firm Angel Commodities said in a report here.

In 2002-03, the release of these stocks helped to contain rise in inflation, mainly in foodgrains. The government has declared that it has sufficient food grain stocks to meet demand under the public distribution system (PDS) and other welfare schemes during 2009-10, the report said.

 

Food grain stocks as on June 1 stood over 535 lakh tonnes against the governments annual requirement of 496 lakh tonnes. The break up of food grain stocks constitutes 204.03 lakh tonnes of rice and 331.22 lakh tonnes of wheat.

In the current level of allocation, the annual requirement of food grains is around 446 lakh tonnes of PDS and about 50 lakh tonnes under other welfare schemes. Hence, even if the impact of poor rainfall in India will be negative, prices will be controlled from spiraling as India has adequate food stocks to manage the situation, it said.

The government's policies will help in developing the spot markets, 'mandis' and lead to better and efficient price discovery in agri commodities.

"We expect this to lead to steady growth in the agri commodity futures volume on the exchanges. The development schemes announced by the government are aimed at providing support to the agricultural sector and could help boost production in respective commodities, thereby bridging the gap between demand-supply," the report said.

The share of agriculture to the gross domestic product (GDP) has dropped from 25 per cent in 2002 to 17 per cent in the present year. Yet, agriculture contributes a huge chunk to the GDP, making it a very important sector for India's growth.

The performance of agri sector is very crucial to the Indian economy not only with regard to GDP but also as a huge chunk of the Indian population is Dependant on agriculture.

Rainfall in India so far this year is 28 per cent below par causing concern as the impact could be devastating, the report said.

Monsoon in the northwestern region of India, the main growing area, is 40 per cent below average. If agricultural production goes down in India then the direct impact would be a decline in the income of people.

The economy as a whole and the GDP will get affected. This factor could lower production of food but will raise food prices. Hence, the significance of the monsoon for the economic system cannot be under-estimated, it said.

The monsoon can directly affect government's savings, public investment and foreign exchange reserves, the report added.