Explained: India’s ‘imported’ food inflation

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News:The United Nations Food and Agriculture Organisation’s(FAO’s) food price index has touched 182.5 points in January 2020, the highest since December 2014.

Facts:

About FAO Food Price Index(FPI):

  • The FAO Food Price Index(FPI) is a measure of the change in international prices of a basket of major food commodities with reference to a base period of 2002-04.

How FPI has affected India:

  • The surge in global food prices is reflected in trends in India as well. Annual consumer food price index(CFPI) inflation which stood at 2.99% in August 2019 has reached 13.63% in January,2020.
  • The inflation in the wholesale price index for food articles has also increased from 7.8% in August 2019 to 11.51% in January 2020.

Factors for rise in food inflation:

Domestic Factors:

  • Indian Agricultural production is dependent on monsoon.Hence,poor monsoonal rainfall during the first half (June-July) has impacted the sowing season which led to reduced/delayed Kharif sowing.
  • The increase in the retail prices of onion was purely due to the failure of the domestic Kharif crop.

Global Factors:

  • India imports two-thirds of its edible oil requirement and that is why higher international prices are automatically transmitted to the domestic market such as in the case of Palm oil.

Additional information:

Imported Inflation:

  • Imported inflation is when the general price level rises in a country because of the rise in prices of imported commodities.
  • The two key contributors to India’s imports are: Crude Oil and Gold.The rise in the prices of these two products usually lead to rise in the import bill of the country.