food inflation -a report1

8/4/2019 Food Inflation -A Report1

1/26

1

A PROJECT REPORT

ON

FOOD INFLATION

Submitted to:

Mrs. Renu Verma Submitted by:Professor Apoorva Saxena

JKBS,Gurgaon Deepshikha Jha

Nibedita Mohanty

Manjari Manisha

Rahul JainRajeev Kr.Deepak

Tanuj Khokhar

Tushar Singhal

Santosh Singh


2/26

2

CONTENTS

1.Introduction2.Trends of food inflation in India3.Reasons of food inflation4.Measures of controlling food inflation5.Government policy6.Article on food inflation7.Conclusion8.Reference


3/26

3

DECLARATION

WE hereby declare that the project work entitled A REPORT ON

FOOD INFLATION submitted to the JK BUSINESS SCHOOL, is a

record of an original work done by me under the guidance of MS

RENU VERMA, professor, of JKBS ,GURGAON, and this project

work has not performed the basis for the award of any Degree or

diploma/ associateship/fellowship and similar project if any.

Apoorva Saxena

Deepshikha Jha

Nibideta Mohanty

Manjari Manisha

Rahul Jain

Rajeev Kr.Deepak

Tanuj Khokhar

Tushar Singhal

Santosh Singh


4/26


5/26

5

ACKNOWLEDGEMENT

We owe great thanks to many people who helped and supported me

during the entire project. Our deepest thanks to MS RENU VERMA theGuide of the project for guiding and correcting various documents of

mine with attention and care. She has taken pains to go through the

project and make necessary correction as and when needed.

Signature:

Date:


6/26

6

INTRODUCTION

What exactly is food inflation? This term has been tossed around over

the last several months, as the price of many food products has risen

considerably. By definition, food inflation is exactly what it seems.

Consumers are now paying more for inflated food prices. In other words,if your monthly grocery budget was Rs.400 a year ago, you are now

likely paying closer to Rs.500-plus, buying exactly the same products.


7/26

7

TRENDS OF FOOD INFLATION

Here in following graph,the horizontal line describes year wise data &

the vertical line describes yoy(year over year).The red line defines rate

of CPI index(customer price index),blue lines defines the food items

while the green lines defines the non food itema(diff. house hold items

).We can see in the graph inflation rate for food prices in 2008 ,it was

nearly abt 25% while it was 15% in year 2005.The change in % in 3

years 105 which is a great margin


8/26

8

Here in this graph ,the horizontal line describes food product while the

vertical line describes % of growth in prices.We are taken various food

product.blue line defines the data of 2008-09 & the pink line defines the

data of 2009-10.If we compare both the data ,there is a significantgrowth in food prices of 2010.lets take the example of food article,onion

etc.

This chart explains how Indian spends their money. As evident from the

chart above, nearly 43% of the personal disposable income goes intofood products. Unfortunately, this is the segment which is experiencing

highest inflation. A high food inflation ensures that consumers have to

cut back on their spending (on non-necessary items). This in turn will

impact the consumption part of the GDP growth


9/26

9

REASONS FOR FOOD INFLATION IN INDIA Food inflation is a direct result of the triad of late monsoons, drought

and flood in some regions of the country this year. Consequently,

Kharif output has been officially stated to be lower than last year,

with significant deficiencies in production of food grains, pulses, and

oil seeds Other than rice and wheat, for which the country has sufficient

stocks, carryover stocks for pulses, oilseeds and sugar are not

adequate to help country tide over this predicament; essentially

indicating a supply driven crisis.

Governments handling of public distribution system in the currentfiscal especially in the light of drought situation

Structural drivers in form of implementation of NREGA, which,though worthwhile, is essentially a consumption expenditure,consequently resulting in too much money floating in the system;

and

Large number of intermediaries in agriculture supply chain & their unrealistic margins thereof. Over the top inflation currently being

registered is said to be happening primarily because of the interplay

of the above factors.


10/26

10

GOVERNMENT POLICYCRR:

CRR is cash reserve ratio. it is ratio of cash which commercial banks

had to keep with RBI. During inflation when there is excess supply of

money in the economy,so in order to control inflation RBI will increase

the CRR . by this commercial banks had to keep more money with the

RBI and there would be less money left with banks to give to generalpublic so interest rate of bank would also get high due to this and due to

high interest rate less people will take loan and due to less money in

market , so it will automatically decrease the purchasing power of the

consumer and so this will decrease the demand of the goods and hence it

will control the food inflation.

Interest Rate:

It is rate at which commercial bank gives loan to public During inflation

when there is excess supply of money in the economy,so in order to

control inflation RBI will increase the interest rate . By this commercial

banks will give money to public at high interest rate and due to high

interest rate less people will take loan and due to less money in market ,

so it will automatically decrease the purchasing power of the consumer

and so this will decrease the demand of the goods and hence it will

control the food inflation.

Marginal Requirement:

In marginal requirement commercial banks takes some security from

public while giving loan. So when farmers aur businessman takes loan

from bank they keep some food material with bank in form of security.

SO during food inflation bank will raise this requirement due this

increase in requirement farmes would not like keep goods in granary


11/26

11

rather than they will like to sell in market so that they can generate

inome. since farmers would sell all food in market rather than storing,

hence this will result in increase in supply of food in the market and due

to increase in supply in market it will automatically control the food

inflation

MEASURES TO CONTROL FOOD INFLATION

Government should commit buying cereals directly from farmersto reduce the benefits garnered by middle men which suppose to be

garnered by farmers himself and should increase the subsidies for

food grains and reduce administered prices of grains.

Potatoes and tomatoes , most other vegetables rot quickly so it isbetter to get them to market before they go bad , to get around this

problem is to build better roads and transport facilities for farmers

to bring their produce to market from hinterland. The Government also needs to unload the wheat inventory it has in

its storage locations. This will have an on the prices


12/26

12

ARTICLES ON FOOD INFLATION

Article 1

IRT: Onion Prices Widen North-South Divide

Onion Price Surge Roils India

N.R. Bhanumurthy, an economist at government-run think tank, theNational Institute of Public Finance and Policy, said a speculative buildup of stocks by traders could have also led to the unexpected price rise.

"Next week, it [food inflation] could be even worse when the full impactof the spike in onion prices will be seen," he said.

Prices of onions have shot up recently due to unexpected rains in thewestern province of Maharashtra, a key supplier of the commodity.

The vegetable's price is a sensitive political issue because of its impacton the country's poor people, forcing the federal government to take aslew of measures after facing severe criticism and public outcry.

The government has scrapped the import tax on onions and also bannedexports, while directing two state-run cooperatives to sell the vegetableat 35 rupees ($0.77)-40 rupees a kilogram, compared with 60 rupees-70rupees in wholesale markets.

Finance Minister Pranab Mukherjee said these measures will help bringdown onion prices, while an improved production of pulses willcontribute to cooling inflationary pressures.

"This year, pulses production may be 2 million tons more than what itwas last year," Mr. Mukherjee said. "That means to that extent it willhave its impact and pulses' prices have already started coming down,"he added.
http://blogs.wsj.com/indiarealtime/2010/12/23/onion-prices-widen-indias-north-south-divide/http://online.wsj.com/article/SB10001424052748704851204576034721326617418.htmlhttp://online.wsj.com/article/SB10001424052748704851204576034721326617418.htmlhttp://blogs.wsj.com/indiarealtime/2010/12/23/onion-prices-widen-indias-north-south-divide/


13/26

13

Cabinet Secretary K.M. Chandrasekhar, the most senior civil servant,said the government will boost onion supplies from Karnataka andGujarat provinces--where produce has been good--to meet the shortfallin other parts of the country.

Separately, Junior Farm Minister K.V. Thomas said state-run tradingcompanies have been asked to import onions from whereever availableand that a fresh arrival of onions from the southern Karnataka provinceare expected in the next 15-20 days.

Consumer Affairs Secretary Rajiv Agarwal said retail prices of onionswill fall in the next few days. He also said that the government isconsidering subsidized imports, but didn't elaborate.

The high reading of food inflation bolsters chances that the ReserveBank Of India may have to end its pause in rate increases when it nextmeets late January to review the monetary policy.

The RBI kept its key lending and borrowing rates steady at the mostrecent review on Dec. 16, but said that there is an upside risk to itsinflation estimate of 5.5% by the end of March.

It has raised the rates six times since March 2010.

Economists largely expect the RBI to hike the two rates by 0.75-1percentage point in 2011 as inflation remains intolerably high; globalcommodity prices--particularly India's largest import, crude oil--are onthe rise.

The inflation data showed vegetable prices jumped 11% in the week toDec. 11 from the previous week, while potato prices rose 10%.

The index for primary articles, which includes food as well as non-fooditems, rose 1.8% to 187.9 in the week to Dec. 11 from the previous week.Prices of primary articles were up 15.35% from a year earlier, afterclimbing 13.25% in the week ended Dec. 4.


14/26

14

Article 2

Food inflation declines after 5-week ascent

Food inflation in India softened in the early part of January afterspiking to nearly a two-year peak in late December, providing some sortof a relief to both policymakers and consumers alike.

However, it still remains at pretty elevated and may not be able todissuade the RBI from increasing interest rates at its next policy meetingon January 25.

Annual rate of inflation in the sensitive Food Articles space decreased inthe week ended January 1, data released by the Government showed onThursday. This was the first decline in food inflation after rising for fiveconsecutive weeks.

Inflation in the Food Articles group fell to 16.91% in the week endedJanuary 1 from 18.32% in the preceding week, the Union Commerce &

Industry said today. Inflation in the food articles space was at 19.65% inthe year-ago period.

Inflation in the Primary Articles group also declined to 17.58% in theweek under review from 20.20% in the week ended December 25.Inflation in the Primary Articles space was at 19.83% in the comparableperiod last year.

Inflation in the Fuel & Power group also inched lower in the week

ended January 1 to 11.53% from the previous week's level of 11.63%.Inflation in this space was at 5.87% in the week ended January 2, 2010.

Inflation in the Non-Food Articles group stood at 20.49% in the weekunder consideration versus 22.39% in the previous week. Inflation inthis group stood at 12.94% in the year-ago period.


15/26

15

Inflation in the Minerals group was at 16.70% in the week endedJanuary 1 as against 30.58% in the week ended December 25. It was at35.86% in the comparable period a year earlier.

On an annual basis, onions became costlier by 70.7% in the week underreview, whereas on a week-on-week basis, the increase was only 1.73%.The year-on-year increase in vegetable prices was 70.73% while on aweekly basis it was 3.84%. Fruits turned costlier by 17.71% year overyear, while milk prices increased by 13.20% on an annual basis duringthe week under review.

Egg, Meat & Fish became pricey by 16.70% compared to the year-agoperiod. Potatoes turned cheaper by about 1.67% annually whileinflation in Cereals was almost negligible year over year and that inPulses fell by nearly 15%. Annual inflation in Rice stood at 1.34% whilewheat prices fell by almost 5%.

India's benchmark WPI inflation rate slowed in November from theyear-ago period due to moderation in prices across key categories, datareleased by the Government showed on Dec. 14. The point-to-pointinflation, as measured by the WPI, came in at 7.48% in November as

against 8.58% in the previous month.

The figure was in line with consensus estimates of 7.5%. But, theGovernment revised upwards September's final WPI inflation rate to8.93% from the preliminary projection of 8.63%.

The Reserve Bank of India (RBI) has set a target of 5.5% headlineinflation by the end of the current fiscal year in March 2011, although itsees the risk to the upside.

The central bank might have to increase key policy rates at its nextmeeting in on January 25 after leaving them unchanged on Dec. 16. Ithas so far hiked interest rates six times since March

India Infoline News Service / 18:45 , Jan 13, 2011


16/26

16

Article 3

NEW DELHI: Food inflation slowed for the second consecutive week inJanuary but inflationary pressures remained as prices of onions and

vegetables still rule high.

Data released by the commerce and industry ministry on Thursday

showed food inflation rose to 15.52% in the week ended January 8,

slowing from the previous week's 16.91%. It had shot up to a year-high

of 18.32% in late December, prompting the government to announce

measures to cool prices. But economists said the impact of the steps

would be negligible. Food inflation has remained above 12% for the

past five weeks.

Economists said food prices are likely to moderate over the next two

months but overall inflation remains high as there is uncertainity over

the extent of decline in food prices. "I don't think theRBIor the

government can draw any comfort from this weekly drop in food

inflation," said Samiran Chakraborty, economist atStandard Chartered

Bank.

He said the RBI is expected to raise interest rates by at least 25 basis

points when it reviews monetary policy on January 25. The RBI has

raised interest rates six times in 2010 and is widely expected to raise

rates again.

PMManmohan Singhhas said he was confident that prices would

stabilize by March but certain factors were beyond the government's

control. FM Pranab Mukherjee met state finance ministers on

Wednesday as part of his pre-budget consultations and urged them to
http://timesofindia.indiatimes.com/topic/search?q=RBIhttp://timesofindia.indiatimes.com/topic/search?q=RBIhttp://timesofindia.indiatimes.com/topic/search?q=RBIhttp://timesofindia.indiatimes.com/topic/Standard-Chartered-Bankhttp://timesofindia.indiatimes.com/topic/Standard-Chartered-Bankhttp://timesofindia.indiatimes.com/topic/Standard-Chartered-Bankhttp://timesofindia.indiatimes.com/topic/Standard-Chartered-Bankhttp://timesofindia.indiatimes.com/topic/Manmohan-Singhhttp://timesofindia.indiatimes.com/topic/Manmohan-Singhhttp://timesofindia.indiatimes.com/topic/Manmohan-Singhhttp://timesofindia.indiatimes.com/topic/Manmohan-Singhhttp://timesofindia.indiatimes.com/topic/Standard-Chartered-Bankhttp://timesofindia.indiatimes.com/topic/Standard-Chartered-Bankhttp://timesofindia.indiatimes.com/topic/search?q=RBI


17/26

17

review local levies which add to prices of food articles and hurt smooth

movement of essential commodities. Some economists say high food

price inflation may be spilling over to other sectors. Headline inflation,

which slowed to 7.48% in November, shot up to 8.43% in December dueto high food prices. The RBI has consistently cautioned against

inflationary pressures in the economy as global commodity prices have

soared in recent months. Economists say calming prices has emerged as

a larger objective for the RBI than nurturing growth.

The index for food articles group declined by 1.2% to 190.6 from 192.9

for the previous week due to lower prices of fish (4%), poultry, chicken,

fruit ad vegetables (3% each), and jowar (2%).

But the index for non-food articles rose by 2.1% to 177.1 from 173.5 for

the previous week due to higher prices of cotton (9%), sunflower (5%),

castor seed and raw rubber (3% each), guar seed (2%) and cotton seed,

raw silk and groundnut seed (1% each).

Times of India .Jan 21, 2011


18/26

18

Article 4

Costlier onion, milk drive food inflation to 10-week

high

Food inflation sharply surged for the fourth consecutive week in mid-December to touch a 10-week high.

Egg, meat dearer

Inflation in food items, based on the annual Wholesale Price Index,zoomed to 14.44 per cent on an annual basis in the week to December18, up from 12.13 per cent a week ago, with items such as onions, milk,fruits, along with eggs, fish and meat products contributing to the spurt.

The Primary Articles index was up 17.24 per cent in the latest weekcompared with an annual rise of 15.35 per cent a week earlier.

The index for Food Articles in the week to December 18 increased 1.1per cent from the previous week while fuel products rose 0.8 per cent on

a sequential basis, according to data issued Thursday by the Ministry ofCommerce and Industry.

Pricey fruits

On a year-on-year basis, fuels surged 11.63 per cent against theprevious week's annual rise of 10.74 per cent.

Among food items, inflation in vegetables gained about 5 per cent from

the previous week and about 30 per cent year-on-year, with onion pricesup 3.5 per cent on the week and 40 per cent on a year-on-year basis.

Fruits were up 22 per cent, while milk surged 18 per cent on a year-on-year basis during the week under review. The group including eggs,meat and fish clocked 20 per cent inflation during the latest week.


19/26

19

Expressing concern over the rise, Finance Minister Mr PranabMukherjee indicated the Government will take more steps to checkrising prices. We are looking into it. So far as onion is concerned wehave taken care of it... but the fluctuation in milk, fruit, vegetables and

certain commodities have contributed to the inflation, he told reportershere.

Food articles contribute about 14 per cent in the WPI. We are waitingfor the full monthly figure (for December, which will be out in thesecond week of next month). Weekly variations are there. Whether theseare corrected in the coming week that is to be seen, Mr Mukherjee

added.

Headline inflation for November had eased to 7.48 per cent on a year-on-year basis from 8.58 per cent in October, but still remains well abovethe RBI's tolerance level. The central bank expects the overall inflationrate to ease to 5.5 per cent by the end of March.

DIESEL PRICE HIKE

According to analysts, an extremely severe winter in most of Europe and

the US has led to a surge in prices of international commodities,including crude oil.

There are indications that the Government might hike prices of diesel inthe near future in the light of the surge in global prices, which wouldfurther stoke inflation.

Our Bureau ,Dec 30


20/26

20

Article 5

Food inflation up beyond expectation, at 18.32%.

Food inflation jumped to 18.32 per cent for the week ended December25 on the back of high prices of vegetables, particularly onions. Pricesof onion for the period skyrocketed 23 per cent on a week-on-week basis.Food inflation stood at 14.44 per cent in the previous week.

Primary article inflation rose to higher-than-expected 20.2 per cent

from 17.24 per cent. Fuel group figures remained unchanged at 11.63per cent.

The rise in food inflation has been mainly on account of 58.58 per centrise in prices of vegetables in the wholesale market. Among theindividual items, onion became dearer by 82.47 per cent on annualbasis, while egg, meat and fish became costlier by 20.83 per cent, fruitsby 19.99 per cent and milk by 19.59 per cent.

Meanwhile, in the non-food category, the prices of fibres and mineralshave climbed by 35.53 per cent and 30.58 per cent, respectively.According to experts, the Reserve Bank of India is now likely to step inand reconsider tightening rates.

"The figures for December 25 week are beyond expectation. But theinflation figures may taper off slightly for the next couple of weeks asvegetable prices cooled down marginally," said Samiran Chakraborty,chief economist at Standard Chartered Bank.

The International Monetary Fund, in its annual advisory on Wednesday,advised the Reserve Bank to maintain a tight policy to tame inflation."India's economic growth is expected to remain above trend in thecoming year, and inflation measures are in the 8.5 per cent to 10.5 percent range," the IMF said in its report.


21/26

21

Last week, Finance Minister Pranab Mukherjee expressed concern overinflation and indicated the government will take more steps to checkrising prices. "We are looking into it. So far as onion is concerned wehave taken care of it... but the fluctuation in milk, fruit, vegetables and

certain commodities have contributed to the inflation," he had said.

Pointing out that the rise was not because of the base effect, he had saidthe price rise was real.

NDTV Correspondent & Agencies, January 6, 2011


22/26

22

REVIEW OF THE ARTICLE

Basically the articles talks about the rising onion prices in india.

Main concern is the steep rise in food inflation rate during December

2010.due to this central may have to tackle the situation more promptly.

Also its affecting the traders and dealers who were expecting some

decrease in food prices during the month.

One of the major reasons may be due to heavy rains in some parts of thecountry. Other can be like the illegal stock maintained by traders. These

problems may leed to the political imbalance.

However, it still remains at pretty elevated and may not be able to

dissuade the RBI from increasing interest rates at its next policy meeting

on January 25.this pattern came in view during start of January

2011.food articles, primary articles, inflation in fuel and power have

come down but commodities like onion , fish and meat have grown in

prices. The Reserve Bank of India (RBI) has set a target of 5.5%headline inflation by the end of the current fiscal year in March 2011,

although it sees the risk to the subside.

Food inflation slowed for the second consecutive week in January but

inflationary pressures remained as prices of onions and vegetables still

rule high.

Economists said food prices are likely to moderate over the next two

months but overall inflation remains high as there is uncertainity overthe extent of decline in food prices. Some economists say high food

price inflation may be spilling over to other sectors. The index for food

articles group declined by 1.2% to 190.6 from 192.9 for the previous

week due to lower prices of fish (4%), poultry, chicken, fruit and

vegetables (3% each), and jowar (2%). But the index for non-food

articles rose by 2.1% to 177.1 from 173.5 for the previous week due to


23/26

23

higher prices of cotton (9%), sunflower (5%), castor seed and raw rubber

(3% each), guar seed (2%) and cotton seed, raw silk and groundnut seed

(1% each).

Food inflation jumped to 18.32 per cent for the week ended December25 on the back of high prices of vegetables, particularly onions. Prices of

onion for the period skyrocketed 23 per cent on a week-on-week basis.

Food inflation stood at 14.44 per cent in the previous week.

Primary article inflation rose to higher-than-expected 20.2 per cent from

17.24 per cent. Fuel group figures remained unchanged at 11.63 per

cent.

The rise in food inflation has been mainly on account of 58.58 per centrise in prices of vegetables in the wholesale market. the prices of fibres

and minerals have climbed by 35.53 per cent and 30.58 per cent,

respectively.

The International Monetary Fund, in its annual advisory on Wednesday,

advised the Reserve Bank to maintain a tight policy to tame inflation.

Reasons:

1.Main reason is the imbalance in the monsoon and heavy rains insome parts of the country.

2.Unexpected rains in western part of India, lead to price rise ofonion basically.

3.Hike in fuel prices continuously4.Unauthorized stock maintenance by traders.

Solutions

1.To control the import and export duties on food items2.Controlling the fuel prices, or just making sure they do not rise in a

continuous manner.

3.RBI should take strict action for controlling the bank rates.4.Unauthorized stock should be distributed in the public for sale


24/26

24

5.Government should release some amount of the buffer stock in themarket.

CONCLUSION


25/26

25

Its been few years that the country is facing the problem of food

inflation .with the fluctuating pries of pulses, vegetables etc. it is thecommon man who is facing the problem of food inflation.

Government is taking measures to curb the problem of food inflation in

the country either by policy or by other mean .Taking stick action

against people black marketing and hoarding .Changes in policy like

CRR and interest rate have helped giving relief to the people of each

economic level. The change in tax rate, avoiding the middle man etc is

little other measure taken by government.

Economist has given that the problem of food inflation will persist for

another decade but some says with change in the policy of which

everybody is looking forward to in March may help in giving relief from

food inflation.

With government taking such fruitful steps it is supposed that the food

inflation will be controlled.

REFERENCES


26/26

26

1.Economics times2.Times of India3.www.netindia.in4.www.news.google.co.in5.www.profit.NDTV.com6.Money control7.Business standard8.http://indianblogger.com/puzzling-inflation/
http://www.news.google.co.in/http://www.news.google.co.in/http://www.news.google.co.in/http://www.profit.ndtv.com/http://www.profit.ndtv.com/http://www.profit.ndtv.com/http://www.profit.ndtv.com/http://www.news.google.co.in/

food inflation -a report1

Documents