Tackling food inflation: is restricting exports and imposing stocking limits the optimal policy?
In a somewhat concerning development on macro-economic front, retail inflation, measured by the year-on-year (YoY) Consumer Price Index (CPI) remains above the Reserve Bank of India’s (RBI) upper tolerance ceiling of 6 percent (4+/- 2 percent), at 6.83 percent in August 2023. In the last month, retail inflation had surged to 7.44 percent. The recent inflation is largely because of the impact of rising food prices, contributing 57.41 percent in August CPI inflation. Since food and beverages carry 45.9 percent weight in the CPI basket (food items alone accounts for 39.05 percent), the highest in any G20 countries, managing food prices becomes critical for taming retail inflation. Furthermore, this year there are growing apprehensions related to the possible negative impact of El Niño on food production and thereby on food prices. This policy brief issued by the Indian Council for Research on International Economic Relations said that the recent steps taken by the government to curb inflation, such as wheat and rice export bans and increasing export duties, were “knee-jerk approaches rather than a well-thought-out strategy”. It argued for a rational trade policy to contain food inflation which takes into account both consumers and producers.