Agrarian Performance and Food Price Inflation in India

7/23/2019 Agrarian Performance and Food Price Inflation in India

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Economic & PoliticalWeekly EPW august 1, 2015 vol l no 31 49

Agrarian Performance and Food PriceInflation in India

Pre- and Post-Economic Liberalisation

Sthanu R Nair, Leena Mary Eapen

The authors are thank ful for valuable comments and suggestions from

an anonymous referee of this journal and participants of seminars and

conferences held at Central University of Kerala, IIM Calcutta, IIM

Kozhikode, and the National Institute of Public Finance and Policy,

New Delhi. The usual disclaimer applies.

Sthanu R Nair ([email protected] .in) and Leena Mary Eapen (leenaeapen@

iimk.ac.in) are with the Indian Institute of Management, Kozhikode.

Examining long-term trends in food inflation in India in

relation to the performance of the Indian agricultural

sector under various agrarian policy regimes, this paper

shows that despite the slowdown in the agricultural

sector andhigher increases in the cost of food

productionduring the post-economic reforms period(19922013), food prices were relatively low compared

to the initial (196780) and the maturing (198092)

stages of the Green Revolution. This, it is argued, is

possibly due to more stable agricultural growth

post 199192, higher buffer food stocks, greater

coverage of the public distribution system, and better

responses to food price fluctuations due to import/trade

liberalisation and a more comfortable foreign exchange

reserves position.

1 Introduction

The post-economic reforms (post-ER) period1in India has

been characterised by a slowdown in the growth rate of

overall agricultural output and crop yields due to vari-

ous reasons (Bhalla and Singh 2009; Desai et al 2011). In the

context of persistently high food price inflation in India over

the last few years, it was argued that the supply constraintcausing high food prices was rooted in the slow growth of

Indian agriculture in the post-ERs period (Carrasco and

Mukhopadhyay 2012; Desai et al 2011; GoI2012). However, a

clear understanding of the food price situation during the

post-ERs period as a whole and its connection with the

slowdown in agricultural growth during the same period is yet

to emerge.

Against this background, this paper aims to examine the

trends in food price inflation in India in relation to the growth

of Indian agriculture pre- and post-ERs, so as to enhance our

understanding of food price behaviour during the post-ERs

period, which has been a period of slow agricultural growth.

For this purpose, following Bhalla (2007), Bhalla and Singh(2009), and Panagariya (2004), the growth path of Indias agri-

culture sector is divided into four phases: the pre-Green Revolution

period (195051 to 196465),2 the initial stage of the Green

Revolution (196768 to 197980), the maturing stage (1980

81 to 199192), and the post-ERsperiod (199293 to 201213).3

The paper is organised as follows. Section 2 presents a brief

performance analysis of Indian agriculture under various

agrarian policy phases in terms of growth in agricultural gross

domestic product (GDP) and food output. In Section 3, the

trends in wholesale price index (WPI) food inflation witnessed

during various agrarian policy periods are discussed. Section 4

offers possible reasons for the price trends that emerged under

agrarian policy regimes. The last section summarises the find-

ings of the paper and draws policy conclusions.

2 Performance of Indian Agriculture

2.1 Pre-Green Revolution (195051 to 196465):At the time of

independence, India witnessed an acute shortage of food due

to the disruption caused to the agricultural sector following the

partition of British India in 1947 (Bhalla 2007; Swaminathan

2012). Partition led to loss of rich fertile lands to Pakistan and

large-scale migration of populations across the borders. The


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augu st 1, 2015 vol l n o 31 EPW Economic & PoliticalWeekly50

government met the countrys immediate food requirement

through large-scale import of food aid, primarily using the PL

480 programme of the United States (US). In addition, serious

attempts were made to attain self-sufficiency in food produc-

tion by way of large public investment in agricultural infra-

structure, implementation of land reforms and rural develop-

mental schemes (Bhalla 2007; Chandra, Mukherjee and

Mukherjee 2008).

2.2 Initial Stage (196768 to 197980): The agrarian

stagnation during the first half of the 1960s eventually led

to the introduction of a new high yielding varieties (HYV)

seedfertiliser strategy, popularly known as the Green

Revolution, starting from 1966.4 The influence of this new

strategy on the performance parameters of Indian agriculture

was not encouraging during the initial stage (196768 to

197980). This is evident from the noticeable drop in the

growth rate of agricultural GDP, output and yield of all the

major crops except wheat during this stage (Tables 1 and 2).5

Several factors are believed to have contributed to this out-come (Bhalla 2007; EPW1967a, 1967b). They include mainly

limited crop (only wheat) and geographical coverage (only

Punjab, Haryana and Western Uttar Pradesh) of the Green

Revolution strategy to start with; the after effects of the 1965

and 1971 IndiaPakistan wars; and the oil crises of 197374

and 197879.

2.3 Maturing Stage (198081 to 199192):Consequent to the

spread of the HYVseedfertiliser strategyto more crops and

almost all geographical areas, Indias agrarian economy wit-

nessed a revival during the

1980s. Compared to the

initial stage of the GreenRevolution, the growth

rate of agricultural GDP,

output and yield of a ma-

jority of crops recorded

an improvement between

198081 and 199192

(Tables 1 and 2). The GDP

growth figure of 3.09%

pa achieved by the agricultural sector during this period is the

highest till date. Another landmark achievement was the

emergence of yield as the predominant contributor to food-

output growth.6

2.4 Post-Economic Reform (199293 to 201213):The eco-

nomic liberalisation strategy introduced in India in June 1991

had no explicit mandate to liberalise the Indian agriculture

sector and integrate it with the global economy (Bhalla 2007;

Chand, Raju and Pandey 2007; Landes and Gulati 2004).7This

together with a host of other factors contributed to the deterio-

ration in the overall performance of Indian agriculture during

the post-ERsperiod.8The growth rate of output and yield of a

majority of food commodities decelerated significantly between

199293 and 201213 (Table 2). On the other hand, the growth

rate of agricultural GDPdeclined slightly to 2.92% pa during the

same period (Table 1).9

3 Trends in Food Prices

We examined the monthly movements (Figures 1 and 2, p 51) of

two components of WPIfood inflation (Base: 200405), namely,

primary food articles and manufactured food products, during

the four agrarian periods described earlier to identify episodes

of high and persistent food inflation during each period, and

to calculate the average inflation rate in each such episode

(Tables 3 and 4, p 52).10Since most studies have suggested a

threshold level of inflation of about 6% for India (Table 2 in

Pattanaik and Nadhanael 2011) we considered the persistence

of inflation of 6% and above as a high inflationary episode. The

average inflation rate recorded in an episode, say from June 1972

to May 1975, is calculated based on the change in the average

value of theWPIover this period with respect to the average value

of the WPIover the corresponding period (June 1971 to May 1974)

the year before. The findings of our analysis are as follows:

Since April 1954 India experienced 14 episodes of high foodarticles inflation (Table 3).11On all these occasions, the impact

of the price build-up was broad-based, implying that almost all

the commodity subgroups under the food articles category

were subject to high inflation.12The longest episodeof high

food articles inflation were the 62 months from July 1979 to

August 1984, followed closely by 61 months from March 2008

to March 2013, and 57 months from June 1963 to February 1968.

The inflationary episode that had the highest average food

articles inflation of 20.22% was during the 36-month period

from June 1972 to May 1975.

During the pre-Green Revolution period, high food articles

price inflation occurred on four occasions (Table 3). The aver-

age inflation recorded during these inflationary episodesranged from 8.5% to over 15%. In the 13 years covering the

initial stage of the Green Revolution, India experienced three

Table 1: Compound Annual Growth Ratesof Gross Domestic Product (GDP) andAgricultural GDP (Base: 200405) (%)

Period Total Agricultural

GDP GDP

195051 to 196465 3.95 2.66

196768 to 197980 3.45 2.19

198081 to 199192 5.21 3.09

199293 to 201213 7.01 2.92

Data for 201011 are second revised estimates

(RE), for 201112 are fir st RE a nd for 201213

are provisional.

Source: Handbook of Statistics on Indian Economy

(HSIE) 201213, Reserve Bank of In dia (RBI).

Table 2: Compound Annual Growth Rate of Production and Y ield ofVarious Food Commodities (%)

Items 195051 to 196768 to 198081 to 199293 to

196465 197980 199192 201213

Output Yield Output Yield Output Yield Output Yield

Total foodgrains 3.54 2.12 2.16 1.73 2.74 3.01 1.58 1.57

Cereal 3.76 2.43 2.47 2.08 2.87 3.20 1.59 1.68

Rice 4.35 2.86 1.95 1.18 3.71 3.12 1.38 1.34

Wheat 4.27 1.53 5.48 2.30 3.63 3.24 1.93 1.12

Coarse cereals 2.75 1.68 0.72 1.81 0.01 1.73 1.45 2.58

Pulses 2.19 0.40 -0.54 -1.08 1.33 1.27 1.34 0.91

Nine oilseeds 3.54 0.89 1.83 0.67 6.06 2.73 2.03 1.75

Sugar cane 6.36 3.07 2.79 1.16 3.67 1.44 1.48 0.01

Tea - - 3.33* - 2.76 1.87 1.99 0.03

Coffee - - 5.01* - 2.67 1.17 2.33 -0.23

Milk 1.64 - 2.23 - 5.14 - 4.15 -

Egg 4.63 - 6.49 - 7.71 - 5.95 -

Fish - - - - 5.14 - 3.35 -

- Not available; * From 197071 to 197980;From 195051 to 196061 based on point-

to-point data;- From 196061 to 197980 based on point-to-point data.

Source (Basic Data): (i) Department of Agriculture and Cooperation (DAC), Ministry of

Agriculture (MoA), Governm ent of India (GoI) (For foo dgrains, oilse eds); (ii) HSIE 201213

(for sugar cane, tea, coffee); (iii) Annual Report 201213, Department of Animal Husbandry,

Dairying and Fisheries, MoA, GoI (for milk, egg, fish).


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episodes of high food articles inflation. The peak average infla-

tion rate recorded during these episodes was 20.22% with the

lowest being 10.96%. During the maturing stage of the Green

Revolution that spanned 12 years, food articles price build-up

occurred on three occasionswith average inflation rates ranging

from 9.88% to 15.11%. Notably, the duration of the inflationary

episodes witnessed during this stage was longer compared to

other stages. Since the introduction of economic reforms, India

experienced four episodesof high food articles price inflation.

The average inflation rate recorded during these episodes

ranged from 9.22% to 12.99%.

Since April 1972, the period from which data is available, high

inflation of the food products group struck India on 11 occasions,

the longest being the 72-month period from April 1989 to

March 1995 (Table 4). The period from April 1979 to June 1981

had the highest average inflation rate of 37.72%. Except for the

periods from December 1976 to June 1977 and from April 2011

to June 2012, on all other occasions, the impact of food products

price build-up was spread across a majority of food items.13

The initial and maturing stages of the Green Revolution had

three episodes of high food products inflation each (Table 4).

The average inflation recorded during the three episodes of

high inflation in the initial stage of the Green Revolution

ranged from 15% to 37.72%. The same figures for the maturing

stage were 8.68% to 10.86%. During the post-ERsperiod, India

experiencedfive episodesof high food products price inflation

with the average inflation rate ranging from 7.29% to 12.20%.

Our literature survey reveals that each episode of food

articles and food products inflation identified were triggered

by a host of factors (Table 5, p 53). In addition, our analysis of

yearly movements in growth of food output and WPIinflation

rates of food reveals that on most occasions the spike in food

Figure 1: Monthly Movements in Food Artic les Inflation Rate (April 1954 to March 2013)

Maturing stage of Green RevolutionPre-Green Revolution Period Initial stage of Green Revolution Post-economic reforms period

See Table 3.Source (Basic Data): (i) HSIE (March 2006), RBI and Central Statistics Office (CSO) (http://eaindustry.nic.in/).

40

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Jan-64

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Nov-2000

Dec-01

Jan-03

Feb-04

Mar-05

Apr-06

May-07

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July-09

Aug-10

Sep-11

Oct-12

Figure 2: Monthly Movements in Food Produc ts Inflation Rate (April 1972 to March 2013)

Initial stage of Green Revolution Maturing Stage of Green Revolution Post-economic reforms period

See Table 4.

Source: As in Figure 1.

Apr-72

Jan-73

Oct-73

Jul-74

Apr-75

Jan-76

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70

65

60

55

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4.1 More Stable Food Production: A striking feature of In-

dias agrarian performance during the post-ERsperiod was the

growth of agricultural output and GDP, though lower, was

more stable. This is evident from the low standard deviation of

the year-on-year growth rate of output of a majority of food

commodities, and of agricultural GDPin the post-ERsperiod

compared with earlier periods (Table 7, p 54). The implication

of this finding is that even if the rate of agricultural growth is

slow, low fluctuations in growth cause few disruptions in food

supply, thereby contributing to low food price inflation. On the

other hand, high agricultural growth may not guarantee low

food prices if it is accompanied by frequent fluctuations in

growth. This is evident from the experience of the maturing

stage of the Green Revolution. The high growth performance

of Indian agriculture during this period was made possible due

to the extraordinary growth achieved in just three years,

namely, 198081, 198384 and 198889. The year-on-year

growth of agricultural GDP during these three years was

14.44%, 10.75% and 16.85%, respectively. The same figure for

foodgrains output was 18.13%, 17.64% and 21.07%, respec-tively. In all the other years during the maturing phase, the

growth rates of agricultural GDPand foodgrain output were

either negative or quite low.

4.2 Shift in Food Consumption:An analysis of food expendi-

ture patterns at current prices prior to the economic reforms

period (196768 to 199394), based on the household con-

sumer expenditure survey conducted by the National Sample

Survey Office (NSSO) on a quinquennial basis, reveals that a

secular shift in food consumption pattern in favour of high-

value food items has occurred in India during the maturing

stage of the Green Revolution (1983 to 1994).15This is evident

Table 3: Average WPI Inflation Rate (Base: 2004 05) Recorded duringVarious Episodes of Food Articles Price Infla tion

Period Duration Inflation

(in Months) Rate (%)

Pre-Green Revolution period (195455 to 196465)

March 1956 to August 1957 18 15.02

July 1958 to May 1959 11 9.91

May 1962 to November 1962 7 8.50

June 1963 to March 1965 22 13.70

Overall period (April 1954 to March 1965) - 4.48

Initial stage of Green Revolution (196768 to 197980)

June 1972 to May 1975 36 20.22

February 1977 to January 1978 12 13.15

July 1979 to March 1981 21 10.96

Overall period (April 1968 to March 1981) # - 5.98

Maturing stage of Green Revolution (198081 to 199192)

April 1981 to August 1984 41 11.67

April 1986 to February 1989 35 9.88

April 1990 to February 1993 @ 35 15.11

Overall period (April 1981 to February 1993) - 10.20

Post-economic reforms period (199293 to 201213)

June 1994 to April 1997 35 11.47 May 1998 to April 1999 12 12.99

October 2005 to September 2007 24 9.22

March 2008 to March 2013 61 11.16

Overall period (March 1993 to March 2013) - 7.86

The period up to March 1981 is included under initial stage of GR because the reason

for high food inflation recorded during April 1980 to March 1981 was the decline in food

production in 197980, which falls under initial stage of GR.

# The year 196768 is not included under initial stage of GR because the high food inflation

witnessed during this year was due to crop failure for two successive years in 196566 and

196667. The year 196768 was an excellent year for Indian agriculture.

@ The period up to February 1993 is included under maturing stage of GR because the root

cause of high food inflation experienced during April 1992 to February 1993 was the poor

growth of agriculture sector in 199192, which falls under maturing stage of GR.

Source (Basic Data): As in Figure 1.

Table 4: Average Inflation Rate (Base: 200405) during Various Episodesof Food Products Price Inflation (%)

Period Duration Inflation

(in Months) Rate (%)

Initial stage of Green Revolution (197273 to 197980)

April 1972 to June 1975 39 15.00

December 1976 to June 1977 7 18.31

April 1979 to June 1981 27 37.72

Overall period (April 1972 to June 1981) - 12.57

Maturing stage of Green Revolution (198081 to 199192)

April 1983 to August 1984 17 10.57

February 1986 to October 1988 33 8.68

April 1989 to March 1993 @ 48 10.86

Overall period (July 1981 to March 1993) - 7.24

Post-economic reforms period (199293 to 201213)April 1993 to March 1995 24 12.20

December 1996 to March 1999 28 9.46

March 2003 to January 2005 23 7.29

January 2008 to July 2010 31 10.20

April 2011 to March 2013 24 7.64

Overall period (April 1993 to March 2013) - 5.94

The period up to June 1981 is included under initial stage of GR because the cause of

high food inflation recorded during April 1980 to June 1981 lies in negative growth of food

production in 197980, which comes under initial stage of GR.

@ The period up to March 1993 is included under maturing stage of GR because the root

cause of high food inflation experienced during April 1992 to March 1993 was the poor

growth of agriculture sector in 199192, which falls under maturing stage of GR.


prices with respect to a particular food commodity was pre-

ceded by a supply shortfall.

A comparison of average food articles and food products in-

flation rates experienced during the various phases of agricul-

tural growth reveal that despite the decline in agricultural GDP

and food output growth rates, the post-ERsperiod saw lower

food inflation compared to the maturing stage of the Green Rev-

olution (in case of food articles), and the initial and maturing

stages of the Green Revolution (in case of food products). On an

average, the food articles inflation rate recorded during the ma-

turing stage of was 10.20% against 7.86% recorded during the

post-ERsperiod (Table 3). In the case of food products, the post-

ERsperiod saw an average inflation of only 5.94% as against

12.57% and 7.24 % recorded during the initial and maturing

stages, respectively (Table 4).14The prices of the majority of in-

dividual food articles and food products turned out to be lower, on

average, in the post-ERs period compared with the maturing

stage of the Green Revolution (Table 6, p 54). Moreover, the peak

average inflation rate recorded in any given episode of high

food inflation was the lowest during the post-ERsperiod for foodarticles (12.99%) and second lowest for food products (12.20%).

4 Understanding the Food Price Trends

We offer the following explanations for the relatively low food

price inflation during the post-ERsperiod notwithstanding the

slowdown in agricultural growth.


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from the following three trends that emerge from Tables 8 and 9

(p 57).16First, the drop experienced in the expenditure share

of cereals both in rural and urban India during 198388 was

not only significantly more than in other periods, but were his-

toric highs. Second, except sugar, all the high-value food com-

modities registered highest expenditure shares both in rural

and urban areas during 198394. Third, the highest percent-

age point increase recorded in the expenditure shares of

pulses, milk, sugar, edible oil, vegetables and fruits in rural

India was during 198394. These trends suggest that the

rising demand for high-value agriculture products was one of

the key factors contributing to the historically high average

food price inflation rate recorded during the maturing stage of

the Green Revolution. This is clearly reflected in Figure 3,

which shows that besides the important role of edible oils, the

contribution of high-value food commodities, namely protein

foods, fruits and vegetables to overall food inflation has increased

markedly in the maturing stage of the Green Revolution

compared with the initial stage.17

The shift in food consumption demand during the maturingstage of the Green Revolution might be due to two reasons.

First, as documented in literature on Indias economic growth,

after experiencing low and stagnant growth during the first

three decades after independence, the Indian economy grew

at a noticeably high rate during the 1980s (De Long 2003;

Nagaraj 2000; Panagariya 2004; Rodrik and Subramanian

2008). This seems to have triggered, for the first time since

independence, the diversification of Indian diets. Second, the

significant increase in the real agricultural wages during

1980smight have pushed up rural demand for high-value food.

The growth of real agricultural wages was highest during the

maturing stage of the Green Revolution. For instance, real

wages for male agricultural labour grew 3.75% between 1983

Table 5: Factors Contributing to Various Episodes of Hig h Food Inflation in India

Inflationa ry Episodes Reasons for High Inflation

June 1972 to May 1975 (food articles) and April 1972 to June 1975 Crop loss in 1971 due to flood situation, in 1972 due to drought and in 1974; uncertainty

(food products) caused by the 1971 IndoPak war; additional demand for food due to influx of Bangladesh

refugees resulting from 1971 IndoPak war; successive increases in the procurement price;

higher central issue prices; absence of a robust system of government procurement,

buffer s tocking and public distribution; delay in importing food; panic situation created

by the dwindling foreign exchange reserves; stoppage of concessional food imports using

soft loans; and speculative behaviour by traders

February 1977 to January 1978 (food articles), December 1976 to June Excess liquidity in the agricultural and trading sectors leading to bullishness in the

1977 and April 1979 to June 1981 (food products) grain market; short-fall in rice production due to scanty rain during 1976 kharif season;

severe drought situation in 197980 leading to sharp drop in foodgrains production and

cornering of large quantities of market arrivals by private traders.

July 1979 to August 1984 (food articles) and April 1983 to August 1984 Short-fall/unimpressive growth in foodgrains production during 197980, 198182 and

(food products) 198283; drought during the kharif season of 198283; self-imposed limits on open

market purchases by government; inadequate spread of public distribution system;

limited food imports due to difficult foreign exchange situation; depletion of buffer stock;

and high support prices

April 1986 to February 1989 (food articles) and February 1986 to Short-fall/unimpressive growth in foodgrains production during 198485, 198586,

October 1988 (food products) 198687 and 198788; higher support prices; drought situation in 198788; and low

foodgrains procurement in 198889 despite record production

April 1990 to February 1993, June 1994 to April 1997, May 1998 to April Short-fall/unimpressive growth in foodgrains production during 198990, 199091,

1999 (food articles), April 1989 to March 1995 and December 1996 to 199192, 199394, 199596, and 199798; large government procurement at high

March 1999 (food products) support prices; large increases in the issue price of foodgrains; more export of wheat

and rice; and increase in speculative hoarding by private traders due to withdrawal of

monitoring of stock limits under Essential Commodities Act and RBI's decision to exempt

almost all commodities from selective credit controls effective from 21 October 1996

October 2005 to September 2007 (food articles) Short-fall/unimpressive growth in foodgrains production during 200405 and 200506;

higher aggregate demand; and government's failure to procure adequate quantities of

wheat

March 2008 to March 2013 (Food articles), January 2008 to July 2010 Supply-side bottlenecks; large increase in minimum support prices; inadequate sale of

and April 2011 to March 2013 (food products) rice under open market sales window of government; inflationary expectations due to

unfavourable climatic condition; increasing demand for food due to an increase in

income, increase in cost of production; and high cost of imports and higher food exports.

Source: Economic & Political Weekly(Analysis and Editorials published in various issues); Nair and Eapen (2011 and 2012); Nair (2013); Patnaik (2007) and the authors analysis of year-on-year

growth of production of various food commodities.

Figure 3: Contribution to Overall Food Inflati on (%)

0

20

40

60

80

100

120

Percent

Figure 3: Contributio n to Overall Food Inflation ( )

Notes:

Source (Basic Data):

(a) Protein foods include pulses, milk, dairy products, egg, meat and fish; (b) Other food

products include grain mill products and oil cake.

Source (Basic Data): As in Table 3.

Initial State of GR Maturing State of GR Post-ERs Period

Cereals

Proteinfoods

Fruits andvegetables

Condimentsand spices

Edible oils

Sugar,khandsari& gur

Other food products


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and 199394, against 1.33% and 0.59% recorded, respectively

during the periods 199394 to 19992000 and 19992000 to

201011 (Himanshu 2005 and Usami 2012).18Prior to the ma-

turing stage of the Green Revolution (1964 to 1980) as well, the

growth of real agricultural wages was slow as evident from the

analysis presented in Chavan and Bedamatta (2006).19

4.3 Role of Minimum Support Prices: One of the key reasons

attributed to the spikes in food prices witnessed during the

post-ERsperiod are the hefty increases in minimum support

prices (MSP) of foodgrains (rice and wheat) (Balakrishnan 2000;

Chand 2005; Dev and Rao 2010). The procurement of foodgrains

by the government at higher MSPcan cause high food inflation

due to three reasons (GoI2000; Nair and Eapen 2011). First, it

sets a higher benchmark for market prices of foodgrains

thereby feeding into food price inflation expectations. Second,

it necessitates a hike in the prices of foodgrains supplied by the

government through the public distribution system (PDS) and

Open Market Sale Scheme (OMSS).20Third, it edges out private

trade thereby reducing the quantum of foodgrains available forconsumption by ordinary consumers. The influence of a hike in

MSPon foodgrain prices is ev ident from Figures 4 and 5 (p 55)

which show that generally, the rate of annual increases in MSP

of rice and wheat and their respective annual inflation rates move

in the same direction, indicating that a higher increase in the

MSPtranslates into an increase in the market price of foodgrains

and vice versa. Long-term trends reveal that MSPfor rice and

wheat in nominal terms recorded much higher increases dur-

ing the post-ERsperiod than in the 1980s(Figure 6, p 55).21

Interestingly, however, cereals experienced lower average

inflation rates during the post-ERs period compared to the

maturing stage of the Green Revolution (Table 6). We provide

the following explanation for this counter-intuitive finding.

Overall, though, the MSPincreased substantially during the

post-ERsperiod, a closer look at the annual increases in MSP

reveals that between the five-year period from 200102 to

200506 in case of wheat and from 200203 to 200607 in

case of rice the increase in MSPwas moderate (circled portion

in Figures 4 and 5). The annual increases in MSPduring these

periods ranged from 1.56% to 1.64% for wheat and 1.75% to

3.77% for rice.22Both prior to and after these periods in the

post-ERsperiod, annual

increases in MSPwere

significantly larger. For

instance, from 199394

to 200102 (200001

in case of wheat) the

annual increases in MSP

ranged from 3.92% to

14.81%, and 2.86% to

25.39% for rice and

wheat, respectively. In-

terestingly, during thisphase of moderate in-

creases in MSP, inflation

rates of both rice and

wheat were ruling low

with a period average of

2.1% and 1.9%, respec-

tively (circled portion in Figures 4 and 5). Incidentally, it is this

fairly long phase of significantly low rice and wheat inflation

rates which has pulled down the average cereal inflation rate

after the economic reforms.

Apart from the modest increases in MSP, which might have

reduced the expectation of an all pervasive increase in food

prices, the other reason for low rice and wheat price inflationbetween 200102 and 200607 appears to be the reduction

followed by no revision in Central Issue Price (CIP) of rice and

wheat since July 2000 for below poverty line (BPL) families,

and since July 200102 for above poverty line (APL) families

(Tables 10 and 11, p 57). The combined effect of the marginal

increases in MSP, and reduction and no upward revision in the

CIPare the following: (a) starting from 200001, the govern-

ments food subsidy bill increased substantially both in

absolute terms and as a percentage of GDP(at market prices)

(Figure 7, p 56), (b) the offtake of rice and wheat both by BPL

andAPLbeneficiaries under targeted public distribution system

(TPDS) increased between 2001 and 2007 (Table 12, p 58). 23

Thus, it is evident that the moderate hikes in procurement prices

during 200102 to 200607 coupled with reduction in and freeze

on PDSprices resulted in a fall in wholesale price of cereals and

increase in offtake of cereals from PDS and open market.

Although increased offtake led to steep falls in foodgrains

buffer stocks between 200203 and 200607 (Figure 8, p 56),

consumers paid lower prices for cereals thanks to modest

increases in MSPand downward/no revision in CIP.24

In sharp contrast to the situation during 2001 to 2007, between

the period 199394 and 19992000 (200001 in case of wheat)

annual increases in MSPwere substantial (Figures 4 and 5).

Table 7: Standard Deviation of Year-on-YearGrowth Rates of Food Productionand Agricultural GDP (%)

195152 196768 198081 199293

to to to to

196465 197980 199192 201213

Foodgrains 8.40 12.52 9.51 8.45

Total cereals 7.75 11.90 9.36 8.24

Rice 10.20 14.80 13.43 9.38

Wheat 12.74 14.91 8.10 6.45

Pulses 14.66 19.27 13.94 13.74

Nine oilseeds 10.32 18.91 18.00 20.68

Sugar cane 16.51 13.04 8.37 11.33

Tea 3.49 4.34 4.21Coffee 24.06 46.16 10.35

Milk 2.19 0.96

Egg 3.31 4.33

Fish (total) 5.65 2.69

Agricultural GDP 5.05 9.05 6.49 4.65

Source (Basic Data): As in Tables 1 and 2.

Table 6: Average WPI Inflation Rate (Base: 2004 05) of Diesel andSubgroups of Food Articles and Food Products under Various AgrarianPolicy Regimes (%)

Items Pre-Green Initial Stage Maturing Stage Post-Economic

Revolution of Green of Green Reforms Period

Period Revolution Revolution

Period Period

Food articles

Foodgrains* 5.10 9.89 7.32

Cereals 3.69 5.40 9.94 7.36

Pulses 8.34 7.54 9.00 8.44

Fruits and vegetables 6.62 6.87 9.81 7.68

Milk 4.09 5.07 10.28 8.04

Eggs, meat and fish 7.42 8.64 9.59 9.64

Condiments and spices* 4.34 18.89 6.14

Fuel (diesel) 10.57 8.39 9.82

Food products

Dairy products 8.96 10.21 6.58

Grain mill products 6.17 9.43 5.21

Sugar, khands ari and gur 11.39 2.32 7.16

Edible oils 11.14 9.64 4.43

Oil cake 10.49 8.32 8.84

Tea and coffee proccessing** 6.66 5.69

Fuel (diese l) 15.81 7.87 9.79

* Prior to April 1963 foodgrains and condiments and spices classification are not available.

** Tea and coffee processing classification is available only from April 1982.



7/12

SPECIAL ARTICLE


Notably, there were frequent upward adjustments in the CIP

consequent to the increases in the MSP (Tables 10 and 11).

Though the food stock with the government was healthy

during this period (Figure 8, p 56)

thanks to high levels of procure-

ment, it has not translated into

lower cereal prices for most years

due to (a) procurement at higher

MSP, and (b) increase in CIPat fre-

quent intervals. In fact, the upward

revision of CIPhas accelerated the

rate of accretion to public stocks of

foodgrains, particularly in case of

wheat during 19972001, by way of

reducing the offtake of grains under

the PDS(Figure 8 and Table 12).25

As regards the other important

phase (2007 to 2012)26of high MSP

prevailing during the post-ERsperiod

to overcome the situation of falling

foodgrain stock from 200203 to

200607 and to incentivise farmers

to increase grain production andproductivity (GoI 2012) a sharp

hike in MSP of rice and wheat

was effected from 200708 and

200607, respectively.27As a result,

cereal prices rose despite rising

grain buffer stock.28 However,

since CIPremained unrevised dur-

ing this period thereby widening

the gap between CIPand the mar-

ket price of grains, the offtake of

foodgrains under TPDS, even by

APLbeneficiaries, was high.

Finally, considering the matur-ing stage of GR, though in absolute

terms the nominal MSPof rice and

wheat was lower during this period

than the post-ERsperiod, a major

shift in the level of nominal MSP

occurred since 198889 (circled

portion in Figure 6). The average

MSPoffered to rice increased from

Rs 131 during 198081 to 198788 to

Rs 210 during 198889 to 199293,

a huge increase of 60%. The MSPof

wheat also increased to a similar

magnitude from Rs 154 to Rs 247

during the same period. More

importantly, the CIP of both rice

and wheat was subject to upward

revision throughout the maturing

state of Green Revolution (Tables 10

and 11). Thus, it turns out that the

high level of MSPin the later part

of the maturing stage of the Green Revolution and upward

adjustments in the PDSissue price at regular intervals have put

pressure on cereal prices.

Figure 4: Movements in Year-on-Year Growth of MSP and Inf lation Rate of Rice (%)

Source: HSIE (RBI) (for MSP) and CSO (for Inflation)

-15

-5

5

15

25

35

45

MSP

Inflation Rate

197677

197778

197879

197980

198081

198182

198283

198384

198485

198586

198687

198788

198889

198990

199091

199192

199293

199394

199495

199596

199697

199798

199899

19992000

200001

200102

200203

200304

200405

200506

200607

200708

200809

200910

201011

201112

201213

Figure 5: Movements in Year-on-Year Growth of MSP and Inf lation Rate of Wheat (%)


-10

-5

0

5

10

15

20

25

30

35

40

MSP

Inflation Rate

197677

197778

197879

197980

198081

198182

198283

198384

198485

198586

198687

198788

198889

198990

199091

199192

199293

199394

199495

199596

199697

199798

199899

19992000

200001

200102

200203

200304

200405

200506

200607

200708

200809

200910

201011

201112

201213

Figure 6: Minimum Support Price of Wheat and Rice (Rupees per quintal)

0

200

400

600

800

1000

1200

1400

Rice

Wheat

Source: HSIE (RBI).

197576

197677

197778

197879

197980

198081

198182

198283

198384

198485

198586

198687

198788

198889

198990

199091

199192

199293

199394

199495

199596

199697

199798

199899

19992000

200001

200102

200203

200304

200405

200506

200607

200708

200809

200910

201011

201112

201213


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SPECIAL ARTICLE


4.4 Role of Buffer Stocks and PDS:As pointed out by Gokarn

(2011), a credible level of food stocks can dampen price volatil-

ity, possibly by keeping a check on speculative tendencies in

the market. Figure 8 reveals that historically, by and large, ce-

real inflation rates and cereal stock levels have behaved simi-

larly.29Barring the period from 2002 to 2007, foodgrains (rice

and wheat) buffer stock with the government was significantly

higher in the post-ERsperiod compared with other agrarian

policy regimes (Figure 8). As such, the higher food stocks

might have contributed to lower

food inflation during the post-ERs

period by enhancing the govern-

ments ability to stabilise prices

through sale of foodgrains to the

open market.30Another closely re-

lated factor could be the improve-

ment in coverage and effective-

ness of the PDSovertime. Though

the PDSplayed an important role

since independence in making

available foodgrains to consumers

at reasonable price, it remained

predominantly urban and ineffec-

tive in reaching the poor until the

mid-1980s (Howes and Jha 1992;

Nawani 1994). However, starting

from the early 1990s, serious pol-

icy interventions such as re-

vamped PDSand TPDSwere madeto ensure the effective reach of

PDSto the traditionally deficit ar-

eas and vulnerable people (GoI

2005; Nawani 1994). Recent stud-

ies have found that PDS has im-

proved overtime in terms of cover-

age and function (Khera 2011;

Rahman 2014).

4.5 Import Liberalisation: It seems

that liberalisation of agricultural

imports and less stringent foreign

exchange constraintsboth an

outcome of opening up of the In-dian economy since 1991have

enabled India to import more

quantities of various food itemsto

meet food requirements at times

of domestic shortage and escalat-

ing domestic food prices, thereby

helping to reduce food inflation

during the post-ERsperiod. This is

evident from Figure 9, Figures 10

to 12 (p 58), which reveal the fol-

lowing trends.

(a) Since 196061, the quantum of

aggregate food imports responded

mostly to food price shocks until

197576, followed by a phase of substantially lower food

imports covering a 10-year period from 197677 to 198687

(Figure 9). Food imports started responding to food price

spikes again from 198788 to 199596 though in a subdued

and erratic fashion. And from 199697 onwards food imports

have responded overwhelmingly to domestic food price esca-

lation. Thus, Indias aggregate food imports remained at a

high level and were adequately responsive to food price escala-

tions before the mid-1970s and after the mid-1990s. In the

Milliontonne

Figure 8: Yearly Movements in Cerea l (Wheat & Rice) Stocks (in Mil lion Tonnes) and WPI Inflation Rate ofCereals (Base: 200405) (197273 to 201213)

Percentage

Source: CSO (for Inflation) and HSIE (RBI) (for cereal stocks).

0

10

20

30

40

50

60

70

-20

-10

0

10

20

30

40

50

Cereal inflation rate (%)

Cereal stocksin million tonne

197273

197374

197475

197576

197677

197778

197879

197980

198081

198182

198283

198384

198485

198586

198687

198788

198889

198990

199091

199192

199293

199394

199495

199596

199697

199798

199899

19992000

200001

200102

200203

200304

200405

200506

200607

200708

200809

200910

201011

201112

201213

Source: Radhakr ishna and Subbara o (1997) and Sharma (2012) (For Subsidy); HSIE, RBI (For GDP).

Figure 7: Food Subsidy in India

0.00

0.20

0.40

0.60

0.80

1.00

1.20

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

As % of GDP

In rupees crore

Rupeescrore

197475

197576

197677

197778

197879

197980

198081

198182

198283

198384

198485

198586

198687

198788

198889

198990

199091

199192

199293

199394

199495

199596

199697

199798

199899

19992000

200001

200102

200203

200304

200405

200506

200607

200708

200809

200910

201011

201112

201213

Percentage

Figure 9: Yearly Movements in Index Number (Base: 19992000) of Food Imports (Quantum) andWPI Food Inflation Rate (Base: 200405) (196061 to 200910)

Source: HSIE RBI (For Import Index) and CSO (For Inflation).

-20

-10

0

10

20

30

40

50

60

0

50

100

150

200

250

Figure 9: Year ly Movements in Index Numbe r Base: 1999-00) of Food Imports Quantum) and

WPI Food Inflat ion Rate Base: 2004-05) 1960-61 to 2009-10)

Food Products Inflation

Food Articles Inflation

Index No of Food Import

196061

196263

196465

196667

196869

197071

197273

1

97475

197677

197879

198081

198283

198485

198687

198889

199091

199293

199495

199697

199899

200001

200203

20

0405

200607

20

0809

200910


9/12

SPECIAL ARTICLE


agricultural products,

namely, pulses, vegeta-

bles, fruits, spices, milk

products, edible oils,

oil cake and sugar have

increased significantly

in response to the price

shocks that occurred in

these products. In par-

ticular, the increase in

imports of many of these

products was pheno-

menal since the early

2000sand this may be

the outcome of removal

of quantitative restric-

tions on farm imports

starting from 2001.

The implication of this

food import patternfrom the point of view

of understanding food

price behaviour is that

the positive import res-

ponse to food price esca-

lation witnessed prior to

197576 was restricted

only to cereals, milk and

milk products. In con-

trast, the highly favour-

able import response to

food price escalation

recorded since the mid-1990swas broad-based,

involving several agri-

cultural commodities.

Farm imports were

liberalised through three

key measures, namely,

removal of quantitative

restrictions (from 2001),

lowering of tariff barri-

ers and increasing the

role of private traders

in agricultural imports by way of decanalisation of imports.35

While these measures have enabled import of large quantities

of food, decanalisation of imports might have produced an

additional benefit in terms of adequate response of private

sector imports to price rise against the pre-1990s situation

of only government controlled imports via state trading

bodies/enterprises.

4.6 Cost of Production: One major factor determining food

price inflation is the cost of production (CoP) in agriculture. In

absolute terms, the trends in nominal C2 CoP36in agriculture

represented by two major food crops, namely, rice and wheat

Table 8: Trends in Percentage Composition of MPCE (at Current Pric es) onGroups of Food Items in Rural India (Share in Total Consumer Expenditureon Food)

1967 1972 1977 1983 1987 1993 1999 2004 2011

68 73 78 88 94 2000 05 12

Cereal 58.69 55.72 50.96 49.25 40.99 38.30 37.31 32.72 24.62 (-2.97) (-4.76) (-1.71) (-8.25) (-2.69) (-0.99) (-4.59) (-8.10)

Gram 1.08 0.78 0.65 0.39 0.38 0.28 0.22 0.24 0.35 (-0.31) (-0.12) (-0.26) (-0.02) (-0.10) (-0.06) (0.02) (0.11)

Cereal 1.08 0.75 0.52 0.28 0.21 0.17 0.12 0.13 0.14 substitutes (-0.34) (-0.23) (-0.23) (-0.08) (-0.04) (-0.04) (0.00) (0.01)

Pulses and pulse 5.69 5.88 5.93 5.37 6.22 6.02 6.41 5.59 6.39 products (0.19) (0.06) (-0.56) (0.85) (-0.20) (0.39) (-0.82) (0.80)

Milk and milk 9.56 10.01 11.93 11.46 13.52 15.02 14.74 15.38 18.67 products (0.45) (1.92) (-0.47) (2.06) (1.50) (-0.28) (0.64) (3.29)

Sugar 5.07 5.16 4.11 4.29 4.47 4.84 4.01 4.31 3.8 (0.09) (-1.06) (0.18) (0.19) (0.36) (-0.83) (0.30) (-0.51)

Edible oil 3.76 4.82 5.55 6.14 7.82 7.03 6.29 8.36 7.75 (1.06) (0.73) (0.59) (1.67) (-0.79) (-0.74) (2.07) (-0.61)

Egg, fish and 3.10 3.39 4.15 4.61 5.07 5.29 5.59 6.05 7.33 meat (0.29) (0.76) (0.46) (0.46) (0.22) (0.30) (0.46) (1.28)

Vegetables 4.22 4.94 5.87 7.19 8.16 9.56 10.38 11.08 9.95 (0.72) (0.92) (1.32) (0.97) (1.40) (0.82) (0.70) (-1.13)

Fruit s and nuts 1.16 1.40 1.74 2.12 2.55 2.76 2.89 3.39 3 .08 (0.24) (0.34) (0.38) (0.43) (0.21) (0.14) (0.49) (-0.31)

Figures in the brackets are percentage points change over the years.

Percentage shares of individual food items do not add to 100 since salt and spices and

beverages etc are excluded. MPCE = Monthly per capita expenditure.Source (Basic Data): NSSO (For 196768 to 1983); Household Consumer Expenditure in

India, 200708; NSS 64th Round (Report No 530) (For 198788 to 200405); and Key

Indicators of Household Consumer Expenditure in India, 201112; NSS 68th Round.

Table 9: Trends in Percentage Composition of MPCE (at Current Pric es) onGroups of Food Items in Urban India (Share in Total Consumer Expenditureon Food)

1967 1972 1977 1983 1987 1993 1999 2004 2011

68 73 78 88 94 2000 05 12

Cereal 38.06 36.17 34.09 32.85 26.46 25.69 25.70 23.65 19.02 (-1.90) (-2.08) (-1.25) (-6.39) (-0.77) (0.01) (-2.04) (-4.63)

Gram 0.47 0.49 0.42 0.32 0.29 0.32 0.23 0.25 0.32 (0.02) (-0.07) (-0.10) (-0.03) (0.03) (-0.09) (0.01) (0.07)

Cereal 0.23 0.20 0.17 0.13 0.12 0.12 0.09 0.12 0.14 substitutes (-0.04) (-0.02) (-0.04) (-0.01) (0.00) (-0.03) (0.03) (0.02)

Pulses and 5.63 5.29 5.95 5.46 6.04 5.55 5.90 5.03 5.59 pulse products (-0.34) (0.66) (-0.49) (0.58) (-0.49) (0.35) (-0.87) (0.56)

Milk and milk 14.12 14.47 15.88 15.62 17.06 17.94 18.05 18.62 20.2 products (0.35) (1.41) (-0.26) (1.44) (0.88) (0.11) (0.57) (1.58)

Sugar 5.40 5.58 4.40 4.16 4.19 4.35 3.41 3.55 3.0 (0.18) (-1.18) (-0.25) (0.04) (0.16) (-0.95) (0.14) (-0.55)

Edible oil 6.14 7.52 7.73 8.19 9.47 8.03 6.53 8.13 6.89 (1.38) (0.22) (0.45) (1.28) (-1.44) (-1.50) (1.60) (-1.24)

Egg, fish 4.86 5.07 5.77 6.10 6.33 6.19 6.52 6.36 7.25 and meat (0.21) (0.71) (0.33) (0.23) (-0.14) (0.33) (-0.16) (0.89)

Vegetables 6.24 6.78 7.33 8.43 9.39 9.99 10.69 10.47 8.82 (0.55) (0.55) (1.09) (0.96) (0.60) (0.70) (-0.22) (-1.65)

Fruit s and nuts 2.75 3.11 3.26 3.57 4.49 4.87 5.03 5.29 4.55 (0.36) (0.15) (0.31) (0.92) (0.39) (0.16) (0.25) (-0.74)

MPCE = Monthly per capita expenditure.

Source: As in Table 8.

Table 10: Central Issue Price (CIP) of Rice(Rs/quintal)

Date of Revision Common Fine Superfine

1982 (October) 188 200 215

1984 (January) 208 220 235

1985 (October) 217 229 244

1986 (February) 231 243 253

1986 (October) 239 251 266

1987 (October) 239 264 279

1989 (January) 244 304 325

1990 (June) 289 349 370

1991 (December) 377 437 458

1993 (January) 437 497 518

1994 (February) 537 617 648

Above Poverty Below Poverty

Line (APL) Line (BPL)

Common Grade A Common/Grade A

1997 (December) 550 700 350

1999 (January) 700 905 350

2000 (Apri l) 1,135 1,180 590

2000 (July) 1,087 1,130 565

2001 (July) 795 830 565

2002 (April) 695 730 565

2002 (July) 795 830 565

The classification of beneficiary category and grain variety

has changed since the introduction of TPDS in 1997.

Source: Economic Survey(Various Issues) and DAC,

MoA, GoI.

interim period (197677 to 199596), Indias food imports were

relatively low.31

(b) A commodity-wise analysis of trends in food imports32

vis--vis food inflation since 196061 reveals that prior to the

opening up of the Indian economy only the import of cereals,

milk and milk products have responded adequately to the

inflationary pressures witnessed in these commodities.33The

import of other food commodities, though responded posi-

tively to price escalation, was very limited during the same

period (Figures 10 to 12, for example).34On the other hand,

after the opening up of the Indian economy, import of several

Table 11: Central Is sue Price of Wheat(Rs/quintal)

Date of Revision Central Issue Price

1982 (August) 160 NA

1983 (Apri l) 172 NA

1986 (February) 190 NA

1987 (May) 195 NA

1988 (March) 204 NA

1990 (May) 234 NA

1991 (December) 280 NA1993 (January) 330 NA

1994 (February) 402 NA

APL BPL

1997 (June) 450 250

1999 (January) 650 250

1999 (April) 682 250

2000 (April) 900 450

2000 (July) 830 415

2001 (July) 610 415

2002 (Apri l) 510 415

2002 (July) 610 415

NA: Not Applicable.

Source: As in Table 10.


10/12

SPECIAL ARTICLE


reveals that post-ERsperiod saw faster increases in CoPthan the

maturing stage of the Green Revolution (Figure 13). A similar

trend was recorded in the growth rate of real CoP(Dev and Rao

2010).37As regards fuel prices, the

average diesel price inflation wit-

nessed during the post-ERs period

was higher than the maturing stage of the Green Revolution

(Table 6). However, interestingly, as indicated earlier, the real

agricultural wages increased at a much slower rate during thepost-ERsperiod compared to maturing stage of the Green Revolu-

tion. These trends suggest that the higher increase in CoPin

Indian agriculture after the economic reforms period was not

attributed to higher increases in cost of farm labour.38Thus, the

relatively low food price inflation in the post-ERs period despite

the higher overall cost of food production was due to an over-

whelming response of other factors discussed above.

5 Summary and Policy Conclusions

In this paper, we have analysed the trends in food price inflation

in India in relation to the performance of the agricultural sector

during the pre- and post-ERsperiods. It is revealed that, on aver-

age, food price inflation was lower during the post-ERs as a

whole compared to the initial and maturing stages of the Green

Revolution. This is despite the decline in the agricultural sector

during the post-ERsperiod and the persistently high food infla-

tion witnessed in recent years which, among others, was caused

due to supply-side constraints, growing demand for protein-rich

food items and rising cost of food production (for details see

Basu 2011; Chand 2010; Nair and Eapen 2012; Nair 2013). Sur-

prisingly, the maturing stage of the Green Revolution, which is

considered a turning point in Indias agricultural development

(Bhalla and Singh 2009), has not turned out to be price friendly,

Source: Food and Agriculture Organization STAT (FAOSTAT) (for imports) and CSO (for inflation).

Table 12: Offtake under the PublicDistribution System/TPDS (in Million Tonnes)

Year Rice Wheat

199091 7.87 NA 7.08 NA

199192 10.17 NA 8.83 NA

199293 9.55 NA 7.47 NA

199394 8.87 NA 5.91 NA

199495 8.03 NA 4.83 NA

199596 9.75 NA 5.81 NA

199697 11.14 NA 8.52 NA

199798 9.9 NA 7.08 NA

BPL+AAY APL BPL+AAY APL

199899 3.35 7.27 2.62 5.20

19992000 3.98 7.21 3.02 2.60

2000 01 5.92 1.94 3.76 0.17

200102 6.74 1.30 4.99 0.53

200203 9.28 1.17 7.98 1.64

200304 11.41 1.86 8.56 2.11

200405 13.24 3.23 9.69 3.20

200506 14.40 4.66 8.69 3.36

200607 15.30 5.82 7.60 2.65

200708 16.66 5.79 7.91 2.93200809 16.36 5.71 8.82 3.71

200910 16.88 6.54 9.47 9.53

201011 17.97 6.87 9.13 9.75

201112 17.91 6.41 9.10 9.68

201213 18.20 7.03 9.78 9.87

NA: Not Applicable; As in Table 10.

Source: Economic Survey(various issues) and

IndiaStat.Com (from 199899).

Figure 10: Yearly Movements in Cereal I mports (in Tonnes) and WPI Inflation Rate of Cerea ls(Base: 2004 05) (196162 to 200910)

Import

Inflationrate

Tonne

Pe

rcentage

196162

196364

196566

196768

196970

197172

197374

197576

197778

197980

198182

198384

198586

198788

198990

199192

199394

199596

199798

19992000

200102

200304

200506

200708

200910

50

40

30

20

10

0

-10

-20

1,20,00,000

1,00,00,000

80,00,000

60,00,000

40,00,000

20,00,000

0

-20,00,000

Figure 11: Yearly Movements in Pulse s Imports (in Tonnes) and WPI Inflation Rate of Puls es

(Base: 2004 05) (196162 to 2009 10)

ImportInflation rate


196162

196364

196566

196768

196970

197172

197374

197576

197778

197980

198182

198384

198586

198788

198990

199192

199394

199596

199798

19992000

200102

200304

200506

200708

200910

40,00,000

35,00,000

30,00,000

25,00,000

20,00,000

15,00,000

10,00,000

5,00,000

0

60

50

40

30

20

10

0

-10

-20

-30

-40

Figure 12: Yearly Movements in Edible Oils Im ports (in Tonnes) and WPIInflation Rate of Edile Oi ls (Base: 200405) (196162 to 200910)


Inflation rate Import

90,00,000

80,00,000

70,00,000

60,00,000

50,00,000

40,00,000

30,00,000

20,00,000

10,00,000

0

60

50

40

30

20

10

0

-10

-20

-30

196162

196364

196566

196768

196970

197172

197374

197576

197778

197980

198182

198384

198586

198788

198990

199192

199394

199596

199798

19992000

200102

200304

200506

200708

200910

Inflation rate Import

Figure 13: C2 Cost of Production of Rice a nd Wheat (Rs/quintal)

Source: Dev and Rao (2010).

Rice

Wheat

198182

198283

198384

198485

198586

198687

198788

198889

198990

199091

199192

199293

199495

199596

199697

199798

199899

19992000

200001

200102

200203

200304

200405

200506

200607

600

500

400

300

200

100

0

Rice

Wheat


11/12


12/12

SPECIAL ARTICLE


34 Only the figures for selected commodities arepresented here. The figures for other commod-ities are available from the authors uponrequest.

35 Decanalisation involves reduction of stateagencies monopoly rights over imports.

36 CoP includes actual paid out costs on pur-chased inputs plusimputed value of family la-bour, rental value of owned land and interest

on value of owned fixed capital assets (Dev andRao 2010).

37 CoP of rice in constant prices has grown by1.46% during 199495 to 200607, while therate was -0.13% between 198182 and 199293.The growth figures for wheat respectively, are1.41% and -1.96%.

38 It is another matter that, due to various rea-sons, real farm wages increased sharply from200708 thereby pushing up the food pricesin the recent times. For details, see Gulatiand Saini (2013) and Gulati, Jain and Satija(2013).

39 This finding supports the proposition that lowfood output and low food prices can coexist ina liberal import policy environment (Dev andRao 2010).

40 For similar conclusion, see Ganesh-Kumar

and Parikh (1998). They, using Monte Carlosimulations, show that a trade liberalisationalong with a suitable level of buffer stockscan ensure food price stability. However, toomuch dependence on liberal trade for meetingcountrys food requirement can at any time in-vite the risks of stoppage of trade owing topolitics of trade (Basu 2011) and of short-sup-ply in the international market due to climaticreasons. Hence, the need for maintaining somereasonable level of self-sufficiency in food can-not be ignored.

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