research institute for compassionate economics

Prices in India

Written by Avinash Kishore on February 26th, 2011
  • Topics:

I will continue from where I started the last time–prices in India. Last summer, my mom was complaining about price of lentils. Masoor was selling at Rs100/kg—unthinkable! Other lentils were also similarly expensive. I wondered—in a country where half of the kids and women were malnourished and almost all depend on lentils as the main source of protein—what such high prices would do to the National Health!In winter, things were much worse. Now prices were high for all food items and rising fast—faster than any other major economy in the world. Food price inflation was 13.7% in December 2010 and 17% in January 2011. Most Indians (75%) live on less than $2 a day and spend more than half of their monthly income on food. Such high food prices must hit them hard. How are they coping with it?

Fortunately or unfortunately, we haven’t seen food riots in India. The ruling coalition, UPA, is under stress—but not because of rising prices. Even the news cycle is dominated more by corruption scandals than the spiraling food prices. The public outcry, if any, is hard to hear. Why? I do not know. What I do know is that my parents, who are poor but not among the poorest in India, have reduced their milk consumption by half. At the same time their maid is demanding a 40% (Rs. 200) increase in her monthly wage. Rising wages will lead to further rise in inflation, forcing further cuts in consumption.

The bad news is that the food prices are likely to remain high for some time to come. Why do I say so? Three factors: i) current high food prices are not due to bad weather–we had a good monsoon in India in 2010. And the world is due for another El Nino event. ii) In last few years, food supply in India and in much of developing world has not responded significantly to rising demand and high food prices. iii) Oil prices are rising again and a positive correlation is observed between oil and food prices once oil prices go above $80/barrel.

If the food prices persist at such high levels, what will be the impact on India’s poor? Will there be an increase in poverty and malnourishment? What will be the margins of adjustment for the poorest—both at the household and intra-household level? Would children’s education be compromised? Would there be an increase in child labor or a rise in discrimination against the women in the family? Again, I do not know, but I want to find out.