Record low inflation explains agricultural protests across India

Food price inflation slips to negative territory; factory output slows marginally to 3.1%; RBI under pressure to cut key rates

Published: 13th June 2017 01:52 AM  |   Last Updated: 13th June 2017 05:08 AM   |  A+A-

Labourers work in a paddy field at Thaska village. (File photo | Reuters)

Image for representational purpose only. (EPS)

By Express News Service

NEW DELHI / CHENNAI: Retail inflation fell to a record low of 2.18 per cent in May aided by the fall in prices of vegetables and pulses, and a drop in prices of clothing, housing and fuel. The figure stood at 5.76 per cent around the same time last year and at 2.99 per cent last month. This is the lowest level that inflation has touched ever since the new series was introduced in 2012.

Low inflation levels are an indicator of falling demand and weak economic activity in the market, say experts, and May’s numbers have put pressure on the Central bank to reduce interest rates in order to spur growth.

Despite growing clamour by industry bodies and the government for a cut in key interest rates, the Reserve Bank of India left them unchanged during its Monetary Policy Review last week, citing an ‘uncertain inflation outlook’. 

While forecast of a normal monsoon this year is good news for consumers as it means better yield and lower food prices, lower inflation has its own dangers, warn experts. It could manifest “in the form of rural distress without agricultural reforms,” says a research report by India’s largest lender State Bank of India.

The overall food price inflation in May slipped into the negative territory and hovered at (-) 1.05 per cent. This is the first time since January 2012 that food prices have witnessed a deflation. Notably, farmers across the country are protesting for higher support prices that meet input costs incurred in cultivation.

 


“The interesting part is even if we compare the October 2016 food prices with the three-year average, the prices have barely moved,” stated the report authored by Soumya Kanti Ghosh, Group Chief Economic Advisor, SBI. “This is all the more relevant, given the agitations for farm loan waivers in different parts of the country as signs of rural distress, a flip side of the crash in food inflation over the last several months.” 

This argument is supported by the government’s inflation data. Prices of vegetables dropped sharply from (-) 8.59 per cent in April to (-) 13.44 in May and prices of pulses and products plunged from (-) 15.94 per cent in April to (-) 19.45 in May. 

“While decline in food inflation is good news for policy makers and consumers, it is not very good news for farmers and especially vegetable and pulses farmers,” said Sunil Kumar Sinha, Principal Economist, India Ratings & Research.

“Prices of pulses in some harvesting areas are already lower than the MSP and thus farmers are not getting full benefit of increased production leading to farmer unrest and increasing clamour for farm loan waiver.”

Meanwhile, data released by the Central Statistics Office showed the index of industrial production (IIP) also slowed marginally to 3.1 per cent in April from 3.8 per cent a month ago, possibly due to ‘lagged impact of demonetisation’. 

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