Rising Food Inflation in India Poses Global Concerns for GDP

by Ella

The escalation of food prices by over 11% in India, a significant player in the global agricultural trade, has garnered international attention, owing to volatile climate patterns, including the driest August experienced in over a century.

India’s central role in the global agri-trade becomes evident as erratic climate conditions, including the driest August in more than a century, propel food prices to surge by more than 11% within the nation.


While tomato prices exhibit a cooling trend, the cost of onions has surged by 25% since June within the domestic market. Moreover, the essential pulses used in preparing dal (lentil soup) have witnessed a price hike of approximately 20% since the beginning of the year.


In the month of July alone, the expense of a standard vegetarian meal in India escalated by a third, leading to what economists have coined as India’s “curry problem.”


Faced with upcoming state elections and a consequential general election next summer, the Indian government has initiated a series of measures aimed at curbing food inflation.


Building upon the prohibition of wheat in May 2022, India’s recent halting of non-basmati white rice exports underscores its commitment to mitigate the issue. Adding to these actions, the finance ministry has implemented a 40% duty on onion exports to encourage domestic supply improvements while discouraging exports.

Anticipating a decline in sugar production this year, Rajni Sinha, the chief economist at CareEdge Group, asserts the increasing probability of a sugar export ban. Such efforts are indicative of the Indian government’s proactive stance to tackle the mounting issue.

Analysts suggest that the government may intensify its response by introducing further measures. For instance, given that the successive export limitations on rice have not yet alleviated domestic rice price inflation, the government might consider a more comprehensive export ban, as noted by the global brokerage firm Nomura.

The question arises: Does India’s vigorous protection of domestic prices risk the exportation of food inflation to the global arena?

Experts from the International Food Policy Research Institute (IFPRI) opine that India indeed bears this risk, particularly concerning rice, sugar, and onions. Over the last decade, India has surged as the world’s leading rice exporter with a 40% market share, and the second-largest exporter of sugar and onions.

The United Nations Food and Agriculture Organization (FAO) underscores the implications. The FAO’s Rice Price Index jumped by 2.8% in July, its highest level since September 2011, primarily propelled by the price surge in the Indica variety of rice, exports of which India has banned. This has inevitably exerted “upward pressure” on rice prices across other regions.

Joseph W Glauber, a senior research fellow at IFPRI, highlights the repercussions: “Since the ban was announced late last month, Thai rice prices have increased 20%,” thereby substantiating the FAO’s concerns.

The global impact, especially on impoverished populations, could be dire, exacerbating food insecurity in the 18 “hunger hotspots” identified by the FAO and the UN’s World Food Programme.

As rice constitutes a staple in the diets of millions across Asia and Africa, India’s significance as a major supplier to these markets becomes pronounced.

The dependency is evident, with 42 countries in Asia and Sub-Saharan Africa relying on India for 50% of their imports, a figure that can rise to 80% in some nations, as highlighted by IFPRI. These countries are often unable to seamlessly replace Indian imports with those from other major exporters such as Vietnam, Thailand, or Pakistan.

The repercussions extend beyond individual nations. Elevated global food prices might lead to lingering implications, including sustained high food import expenditures and the utilization of precious foreign exchange. This could exacerbate balance of payment challenges and contribute to inflation, warns Upali Galketi, a senior economist at the markets and trade division of the FAO.

Nevertheless, attributing the surge in global food prices solely to India’s measures would be an oversimplification. Factors such as the termination of the Black Sea Grain Initiative after Russia’s invasion of Ukraine and widespread climatic irregularities across the globe also significantly contribute.

The convergence of these market dynamics, however, has effectively reversed the downward trend in international food prices observed since the middle of the previous year, asserts Mr. Galketi.

Interestingly, while global food prices are reaching historic highs, several regions, including China, are experiencing economic slowdowns. This diminished demand from key regions is contributing to the burden on international food prices.

Although the World Bank projects a lower food price index for 2023 compared to 2022 due to reduced oil and grain prices, analysts emphasize that the trajectory ahead hinges on the impact of the El Niño weather phenomenon. Such uncertainties could exert far-reaching implications and amplify pressure on food markets.

In light of these uncertainties, calls urging India to reverse its ban on key commodity exports have surfaced from various quarters, including the International Monetary Fund.

Beyond the global food inflation concerns, the adverse repercussions of export bans are evident. These measures erode India’s reputation as a reliable supplier and hinder farmers from benefiting from remunerative global prices, as stated by analysts at Nomura.

Trade restrictions might also exacerbate price volatility. For instance, the surge in pulse inflation in 2015-16 prompted India to substantially boost imports. However, normal monsoons and robust domestic production in subsequent years led to oversupply, causing prices to plummet into deflationary territory from 2017 to 2018.

Additional concerns arise. As Mr. Glauber points out, importers could opt for more dependable partners if diversifying suppliers outweighs price considerations.

However, according to the FAO, the most substantial threat stems from the potential proliferation of export restrictions by other countries. Such actions could undermine trust in the global trading system.

Nonetheless, pragmatism and the commitment to enhance food self-sufficiency might outweigh these considerations, particularly in India’s politically sensitive climate.

Historically, surging crop prices, notably onions, have been linked to electoral defeats in India. Coupled with an already precarious consumption recovery, the elevated cost of food, constituting a significant portion of the average Indian’s expenditures, could erode disposable incomes ahead of the approaching festive season, potentially derailing the ongoing recovery.

Given that the Reserve Bank of India has already implemented six interest rate hikes and has limited options to combat food inflation due to its supply-side nature, the government’s recourse is limited to trade restrictions.

In the words of Ms. Sinha, “All countries right now are focused on controlling inflation in their own economies. I would say India also has to take care of its interests before it starts worrying about global inflation.”



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