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Such a condition would increase demand and push up prices again, and further tightening of fiscal and monetary policy would then be required. This would be a vicious cycle and the Modi government must save the economy and the people by restoring the right conditions for growth, of which price stability is a critical condition. A higher interest rate will increase the cost of investments and costs, which will further increase prices.
Data available on the Consumer Affairs Department’s portal shows that the all-India daily average retail prices of rice increased by 9.03 percent, wheat by 14.39 percent and wheat flour by 17.87 percent compared to last year. Daily average wholesale prices in India for rice were higher by 10.16 percent, wheat by 15.43 percent and wheat flour by 20.65 percent.
Rice is the staple food staple across the country and the Ministry of Agriculture has just estimated kharif rice production at 104.99 million tonnes, down 111.6 tonnes (down 6 percent) from the last kharif season’s production. The ministry admitted that domestic rice prices are showing an “increasing trend” and may “continue to rise” for at least a year until the next kharif season.
The decline in kharif production is significant as rice is distributed under the National Food Security Act. This will lead to new difficulties in procuring sufficient rice for the country’s public distribution system. It should be noted that India recently banned rice exports to keep domestic prices down, but failed. Domestic rice prices continue to rise.
The Ministry said the changes were made in view of the need to support the ethanol blending program, which saves expensive oil imports and helps livestock and poultry by reducing the cost of animal feed, which affects the price. milk, meat and eggs.
However, broken rice exports have increased more than 43 times in the last four years from just 0.51 LMT in 2019 to 21.31 LMT during April-August 2022. This has affected domestic broken rice prices from Rs 16 per kg to Rs 22 per kg. on the open market.
This negatively increased the cost of inputs for poultry and livestock by 60-65 percent, which in turn increased the prices of meat, eggs and milk, thus contributing to food inflation.
The Modi government has very narrow options in this regard. On the one hand, it cannot divert grain to the ethanol industry when a large population of the country needs free food grain because they cannot afford to buy it at the market price, and on the other hand, it must divert it to ethanol production. keep oil prices under control and save foreign exchange.
The Modi government does not seem to know how to deal with the unpleasant situation. For now, it is simply following a wait-and-watch policy even though inflation is hovering around 7 percent, an eight-year high, and well above the RBI’s tolerable range of 4-6 percent.
The RBI sees it as difficult to bring it down to 4 percent through monetary policy as it fears that aggressive rate hikes could hurt economic growth.