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Poor monsoon to fuel food, non-food prices

Published: 16th August 2012 12:05 PM  |   Last Updated: 16th August 2012 12:05 PM   |  A+A-

Prices of food and non-food articles are likely to increase on the back of drop in agricultural production due to the impact of deficient monsoon rains, Centre for Monitoring Indian Economy (CMIE) said in its latest report.

“We expect the South-West monsoon to remain deficient and the major crop production to decline by 2.3%. This decline in output of major crops is expected to add to the already high inflation seen in food articles,” CMIE said.

According to CMIE, prices of food articles, especially cereals, pulses, oilseeds and vegetables are likely to rise further from current levels.

“We expect the food inflation at 9.7% during 2012-13, against our previous projection of 9.1%,” it added.

Headline inflation in July dipped below the 7% mark to a 32-month low of 6.87% on the back of non-revision in diesel, LPG and kerosene prices coupled with a favourable base. The rainfall has been deficient by 21% across India during the crucial monsoon period of June to August. Moreover, water levels in reservoirs around the country are reportedly 20% below normal levels with the situation more acute in south India.

Food prices have started to climb particularly for rice, soya and sugar.

According to latest data, states that grow kharif crops like Gujarat, Rajasthan, Karnataka, parts of Maharashtra, west UP received deficient rainfall even in July leading to decline in acreage of major crops by 10%.

According to HSBC Chief Economist for India & ASEAN Leif Lybecker Eskesen, there is a need to reduce the volatility of agricultural output and close the productivity gap between the agricultural sector and the rest of the economy over the medium term.

“In addition to increasing irrigation, output can be pumped up through further efforts to increase the use of good quality seeds, improve soil fertility, strengthen water management, and step up mechanisation. The latter will also require more reliance on larger scale farming,” he told Express.

Meanwhile, international commodity prices are expected to rise on account of the drought-like situation in the US and combined with the depreciating rupee, imports are likely to push up domestic food inflation.

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