India has experienced persistent and high food inflation in the recent past. What could be the reasons?
- Due to a gradual switchover to the cultivation of commercial crops, the area under the cultivation of food grains has steadily decreased in the last five years by about 30%.
- As a consequence of increasing incomes, the consumption patterns of the people have undergone a significant change.
- The food supply chain has structural constraints.
Which of the statements given above are correct?
[UPSC Civil Services Exam – 2011 Prelims]
(a) 1 and 2 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2, and 3
Answer: (b)
Explanation:
- Rising income and diversification of diets raising the demand for high-value food products, and thereby adding to inflationary pressures.
- Using data from the National Sample Survey Organisation’s household consumption expenditure survey for 2009-10, expenditure elasticities were estimated for various commodities.
- All the estimated elasticities were positive, with milk, vegetables, and fruits having elasticities exceeding one, indicating that an increase in household expenditure leads to a more than proportional increase in demand for these items.
- Although the elasticity for meat and fish is below one, it is still significant enough to cause a notable increase in demand with rising food expenditure.
- In an emerging economy with growing per capita income, the high elasticities for nutrient-rich commodities suggest a growing demand for these items.
- There is a persistent gap between demand and supply for pulses, meat, fish, milk, and vegetables, which has led to increased food prices by 0.3% to 1.1% annually.
- Factors such as fuel and agricultural wage inflation, as well as international food price surges, affect food inflation.
