Inflation Surge Spurs Modi Govt's Pro-Consumer Agricultural Shift

The pronounced uptick in CFPI, surpassing the general inflation rate, points to a disproportionate burden on consumers concerning food expenditure.

Srajan Girdonia
New Update

In a sweeping evolution of agricultural policies, the Narendra Modi-led administration has undergone a fundamental recalibration over the past two years. From a distinct pro-producer orientation, the government's strategy has navigated toward a more consumer-oriented paradigm. Delving into the extensive data encapsulating both terms under Modi's leadership unveils a narrative where the trajectory of inflation, particularly in the realm of food prices, stands as the linchpin dictating transformative policy directions.

Inflation Trends: A Tale of Two Terms

The contrasting inflation rates between Modi 1.0 and Modi 2.0 encapsulate a profound shift in the nation's economic dynamics. During the initial term, characterized by June 2014 to May 2019, the government experienced a phase of subdued inflationary pressures. With the consumer price index (CPI) registering an average annual increase of 4.3%, and the consumer food price index (CFPI) even lower at 3.3%, it painted a picture of relative stability in consumer prices.

However, the subsequent period, spanning June 2019 to November 2023 under Modi 2.0, unfolded a markedly different narrative. Inflation surged across the board, signifying a departure from the prior phase of stability. The CPI surged to an average of 5.8%, reflecting an escalation in general consumer prices. Simultaneously, the CFPI climbed to a higher 6.4%, indicating an even steeper rise specifically in food prices.

These numbers reveal critical shifts in the nation's economic landscape. The increase in CPI denotes broader inflationary pressures affecting various consumer goods and services, impacting the general populace's purchasing power. The pronounced uptick in CFPI, surpassing the general inflation rate, points to a disproportionate burden on consumers concerning food expenditure, a critical component of household budgets.

The surge in food prices, outpacing the general inflation rate, tends to impact households more acutely as it directly affects essential spending. This discrepancy between general inflation and food inflation signals challenges in ensuring affordability and accessibility of basic food items, which could potentially strain household budgets, particularly for lower-income segments of the population.

Moreover, the escalation in inflation rates during Modi 2.0 potentially underscores supply-demand imbalances, production challenges, or external factors impacting food prices. It suggests a need for nuanced policy interventions to mitigate these inflationary pressures and stabilize the cost of living, particularly concerning essential food items, to alleviate the burden on consumers.

Policy Response: Producers vs. Consumers

During the Modi 1.0 era, the government's strategic focus on bolstering agricultural producers was evident through a series of policies tailored to navigate the surplus situation in agricultural commodities. The substantial procurement of rice and wheat at minimum support prices (MSP) emerged as a cornerstone of this approach, resulting in government warehouses brimming with record stocks. This intentional procurement not only provided stability to farmers' incomes but also ensured a buffer stock for food security purposes.

Complementing this, the government undertook proactive measures such as augmenting food grain allocations. This move was particularly significant during the challenging phase of the Covid-induced economic shock, where doubling the monthly allocation of food grains under the public distribution system to 10 kg per person from April 2020 to December 2022, with an additional 5 kg distributed free of cost, provided crucial relief to vulnerable sections of society.

Furthermore, recognising the plight of domestic growers grappling with diminished returns, the government fortified its protective measures. Import duties on pulses and edible oils were substantially increased to shield local producers from the adverse impact of cheap imports. This escalated tariff structure acted as a bulwark, preventing the influx of foreign produce at low prices, and safeguarding the interests of domestic cultivators.

The revision of duties across various imported goods was a concerted effort aimed at creating an environment conducive to domestic agricultural production. Before June 30, 2017, pulse imports attracted no duty, but subsequent revisions imposed significant levies. For instance, import duties on Arhar and Masoor escalated to 30%, while duties on other varieties like Chana, yellow/white peas, and others witnessed substantial hikes, accompanied by annual import quantity restrictions. The imposition of duties and restrictions on imports gradually escalated, signifying the government's intent to insulate local producers from external market volatility.

These policy interventions during Modi 1.0 were instrumental in stabilizing prices, ensuring income support for farmers, and fortifying the agricultural sector against external disruptions. However, the subsequent phase under Modi 2.0 witnessed a paradigm shift in policy orientation, necessitated by a transformed economic landscape characterized by burgeoning inflationary pressures, particularly in food prices.

The pinnacle of this period was marked by the enactment of three farm reform laws in June 2020, aimed at liberalising agricultural trade. These laws aimed to allow private entities to directly engage with farmers, bypassing government-regulated markets, with the hope of easing MSP procurement burdens.

However, the geopolitical upheaval following Russia's invasion of Ukraine in February 2022 triggered a dramatic reversal. The resurgence of food inflation forced the government's hand to prioritize consumer interests over producers'. Policies swiftly shifted gears, with reductions in import duties on key commodities like palm, soybean, and sunflower oils, coupled with duty-free imports of certain pulses.

The Pivot Towards Consumer Welfare

The contemporary agricultural landscape stands in stark contrast to the surplus era, signalling a pivotal shift in supply dynamics. Stocks of pivotal staples, notably rice, wheat, and sugar, have undergone a considerable depletion. This marked reduction in reserves underscores a fundamental transition from abundance to scarcity, necessitating decisive governmental action to navigate the challenging terrain.

In response to this altered scenario, the government swiftly implemented measures aimed at stabilizing domestic supplies and curbing spiralling prices. Notably, export bans were imposed on wheat and sugar, effectively halting their outbound trade. This strategic move aimed to retain these essential commodities within national borders, fortifying internal stocks to ensure sustained availability for domestic consumption.

Concurrently, the imposition of stock limits on essential commodities like wheat, arhar, and urad signifies a calculated effort to regulate the quantity of produce held by traders, processors, and retailers. These limitations were set in place to prevent hoarding, thereby maintaining a balance between supply and demand, and curbing speculative price hikes.

The regulatory measures extended beyond primary staples, encompassing even secondary agricultural components. Restrictions on onion exports and certain feed ingredients further exemplify the government's comprehensive approach to stabilizing the agricultural ecosystem. By curbing the outward flow of onions and vital feed ingredients, the government aims to maintain equilibrium in both the consumer market and the livestock industry, shielding consumers from price volatility and ensuring the continuity of animal husbandry practices.

Amidst these regulatory interventions, a strategic shift in prioritizing sugarcane usage has emerged. The renewed emphasis on diverting sugarcane toward food production, particularly sugar, over its utilization in ethanol production, is indicative of the government's overarching commitment to securing adequate food provisions for the populace. This pivot underscores a deliberate choice to channel resources toward meeting the immediate food needs of the population, especially amidst tightening supplies and escalating food prices.

The Future Trajectory

Given the disconcerting levels of retail food inflation, with an 8.7% increase in November 2023, the situation becomes even more alarming when we delve into specific categories. The surge is particularly pronounced, with cereals witnessing a substantial uptick of 10.3%, and pulses experiencing an unprecedented surge of 20.2%. This granular breakdown underscores the acute challenges within specific food segments, necessitating targeted interventions.

In light of these daunting statistics, the government is poised to uphold or potentially intensify existing restrictions as the nation approaches the impending Lok Sabha polls scheduled for April-May 2024. The persistently high levels of food inflation signify not only economic strain on households but also carry significant political ramifications. No ruling party would want essential food items, particularly staples like cereals and pulses, to dominate public discourse during a crucial electoral period.

The overarching objective remains rooted in maintaining food security and averting a situation where essential items become disproportionately expensive, thus safeguarding the broader socio-economic fabric of the country. As the political landscape converges with economic realities, these policies underscore the delicate balancing act that the government needs to execute to address both the immediate needs of the populace and the broader concerns of the nation.

With inflation surges and dwindling stocks reshaping priorities, the administration's strategic measures seek to stabilise domestic supplies, mitigate inflationary pressures, and ensure essential items' affordability. As the nation braces for the national elections in a few months, the delicate balance between producer welfare and consumer affordability remains a critical consideration, underscoring the imperative for nuanced policy decisions to sustain food security and economic stability.