Controlling Agricultural Price Inflation in India

India’s inflation rate has grown more than expectations in May 2012 with increase in fuel and food prices. It is being assumed that this decrease will not be enough to stop the interest rate deduction, which is due to be effected in order to address the present situation of slow growth. The benchmark wholesale price index has increased by 7.55% compared to the 2011-12 fiscal. In April 2012 it had increased by 7.23%. 37 estimates done by a survey conducted by Bloomberg News had produced a median figure of 7.5 percent. Other reports have also shown that India’s imports and exports have been going down in May 2012. The rate of increase in the prices of non-food manufactured goods is a proper indicator of core inflation. In April 2012 this rate was calculated at 4.77 percent, only to go up to 4.86 percent in May 2012. This information has been collected by Bloomberg, which also reveals that vegetable prices have increased by 49% compared to 2011, and power and fuel expenses have increased by 11.5%. This paper is an attempt to suggest possible measures to ease the increasing agricultural food prices There are many reasons why food prices have risen at such a rapid rate, and all of them point to major failures of state policy. Domestic food production has been adversely affected by neo-liberal economic policies that have opened up trade and exposed farmers to volatile international prices even as internal support systems have been dismantled and input prices have been rising continuously. The prices of all key agricultural commodities have risen sharply. Significant price increase has been observed in commodities like arhar dal, sugar, potatoes and onions. The key reason cited for the spiraling agricultural price inflation is the bad monsoon in India. Indian Agriculture is said to be a Gamble with Monsoon. The Indian farmers are largely dependent on the four-month monsoon season during which 80% of the year's total rainfall takes place. The reason is that 60% of the country's total cropped area is not irrigated. Part of the agricultural inflation is due to Government action or the lack of it. The Government is sitting on a buffer stock of 65 million tonnes and it is not clear why this stock has not been progressively released at least in part into the open market to control prices. The whole issue of agricultural price management is essentially a question of ensuring adequate supplies and removing bottlenecks in distribution. Tight liquidity will aggravate the troubles of various sectors, including the farm sector. Therefore, the Government should not hesitate to release sufficient quantities of food from its buffer stocks. After all, the buffer stock is meant to deal with situations of price rise and shortage. Considering the impact of agricultural Inflation, it is very important for the Government to try and control the inflation or at least try and ensure that these circumstances do not arise again in the future. As mentioned above, there are several ways of curbing agricultural inflation. Presently agricultural inflation has started coming down a little bit, but not fully. The Government expects good monsoon and crop, leading to moderating influence from mid-July onwards, The RBI has risen the rates twice this year to check agricultural inflation from spreading to manufacture goods, but with inflation continuing to rise, economists expect another round of policy action even before the scheduled July 27 review of the monetary policy.