and the nature of the challenge. i will then move on to indicating the policy measures for addressing the challenge of food inflation on a durable basis. i will, in the end, address an issue more directly relevant to the reserve bank – the role of monetary policy in the face of supply shocks. ii. trends in food inflation over last six decades 5. an assessment of the inflation trends over last six decades indicates that india has encountered successive bouts of high food inflation, but the underlying drivers have changed over time ; the influence of monsoon has declined and some new sources of price pressures have emerged. what is particularly notable is that during the 2000s, average food inflation fell significantly ( chart - 1 ). in contrast, since 2008 – 09 ( i. e. about last three and half years ), average food inflation has been higher than the average food inflation in each of the past six decades. this cannot all be attributed to poor monsoon. sure, rainfall was deficient in 2009, but so was it in 2002 and 2004. but, in the earlier years, food inflation remained modest, at bis central bankers ’ speeches less than three per cent over three successive years during 2002 – 05 whereas it shot up to double digits in 2009. what has changed in recent years to cause sustained price pressures? this is the big question we need to answer to find a durable solution to food inflation. iii. factors driving food price pressures 6. what are the factors driving food inflation? i would emphasize the following : ( i ) shift in dietary habits towards protein foods ; ( ii ) pressure stemming from inclusive growth policies ; ( iii ) large increases in msps of foodgrains ; ( iv ) shocks from global food inflation ; and ( v ) financialisation of commodities. let me take them up one by one. ( i ) shift in dietary habits towards protein foods 7. a distinct feature of recent food price inflation has been the sustained price pressure in protein rich items ( pulses, milk, fish, meat and eggs ). inflation in protein rich items has generally exceeded both headline ( wpi ) inflation and inflation in primary food articles ( chart - 2 ). 8. as one would expect, the share of food in total expenditure has declined over successive rounds of nsso surveys alongside increases in per capita income, consistent with engel ’ s law ( chart - 3 ). bis central bankers ’ speeches 9. we need to turn to the lesser known bennet ’ s law for an explanation of food inflation. ben

echoed the fisheries management of the 1970s. risk quotas are calibrated and applied node by node, species by species approach, which takes no account of individual nodes ’ system - wide importance – for example, arising from their connectivity to other nodes in the network or their scale of operations. apart from interconnectedness, mr haldane also uses the natural relationship between diversity and stability to show how lack of diversity was a reason for collapse of the financial system. studies of coastal eco - systems, he said, reveal some dramatic patterns. for around 800 years, between the years 1000 – 1800 ad, fish stocks and species numbers were seemingly stable and robust. since then, almost 40 % of fish species across the world ’ s major coastal eco - systems have “ collapsed ” – defined here as a fall in population of greater than 90 %. that is systemic by any metric. there appear to be many environmental reasons for this collapse, some natural, others man - made. the financial system, mr. haldane observed, has mirrored the fortunes of the fisheries, for many of the same reasons. since the start of crisis many banks have seen their market capitalization fall by a significant amount - the fisheries equivalent of collapse. but what took marine eco - systems two hundred years to achieve has been delivered by financial engineers in two!! in explaining the collapse in fish and finance, lack of diversity seems to be a common denominator. i am sure that during the workshop, you will be discussing the various ways in which the costs and benefits of projects can be realistically assessed by incorporating the monetary value of the risks or threats to biodiversity or ecosystem services. what is equally important is for the workshop to discuss issues surrounding how to ensure that these costs and benefits actually get incorporated in a project appraisal. perhaps, the principles and rules for making for environment impact assessments ( eias ) should be broadened to include all aspects of environmental costs and benefits, such as impact on biodiversity and ecosystem services, instead of merely the immediate impact, say, on pollution. gains and losses to natural and human capital will thus need to factored - in as a mandatory requirement. once the assessment is done in this manner to ensure a rational allocation of resources, it is essential that goods and services are priced appropriately reckoning such costs and benefits as are not reflected in market valuations. where such costs and benefits are not fully captured in the pricing there would be an issue of subsidies and taxation to ensure appropriate