THE WORLD BANK WORKSHOP Growth and Inclusion: Theoretical and Applied Perspectives Session I Food Inflation: Drivers and Policy Implications Subir Gokarn Reserve Bank of India January 12, 212 The Claridges Hotel 12 Aurangzeb Road New Delhi, India
Food Inflation: Drivers and Policy Implications Subir Gokarn Deputy Governor Reserve Bank of India Seminar on Growth and Inclusion: Theoretical and Applied Perspectives New Delhi, January 12, 212 1
Structure of Presentation Characteristics of food inflation Demand factors Supply factors Policy implications 2
CHARACTERISTICS OF FOOD INFLATION 3
Apr-54 May-55 Jun-56 Jul-57 Aug-58 Sep-59 Oct-6 Nov-61 Dec-62 Jan-64 Feb-65 Mar-66 Apr-67 May-68 Jun-69 Jul-7 Aug-71 Sep-72 Oct-73 Nov-74 Dec-75 Jan-77 Feb-78 Mar-79 Apr-8 May-81 Jun-82 Jul-83 Aug-84 Sep-85 Oct-86 Nov-87 Dec-88 Jan-9 Feb-91 Mar-92 Apr-93 May-94 Jun-95 Jul-96 Aug-97 Sep-98 Oct-99 Nov- Dec-1 Jan-3 Feb-4 Mar-5 Apr-6 May-7 Jun-8 Jul-9 Aug-1 Sep-11 Per cent 35 Food Inflation in India A Long View Food Inflation 25 15 5-5 -15-25 4
1954:3-57:7 1963:12-65:8 1966:5-1968:1 1972:7-75:5 1979:8-82:3 1983:3-84:2 1987:8-89:1 199:1-92:12 1994:4-95:11 1996:4-97:4 1998:5-99:4 26:1-7:8 28:9-11:1 Per cent 35 Persistence of Food Inflation 3 25 2 15 1 5 Avg. food inflation Peak food inflation 5
1954:3-57:7 1963:12-65:8 1966:5-1968:1 1972:7-75:5 1979:8-82:3 1983:3-84:2 1987:8-89:1 199:1-92:12 1994:4-95:11 1996:4-97:4 1998:5-99:4 26:1-7:8 28:9-11:1 Persistence of Food Inflation 2 4 35 35 Number of months 32 38 3 27 25 2 17 21 23 18 2 2 15 12 13 12 1 5 6
195-51 1952-53 1954-55 1956-57 1958-59 196-61 1962-63 1964-65 1966-67 1968-69 197-71 1972-73 1974-75 1976-77 1978-79 198-81 1982-83 1984-85 1986-87 1988-89 199-91 1992-93 1994-95 1996-97 1998-99 2-1 22-3 24-5 26-7 28-9 21-11 Per cent Per cent Contribution of Food Inflation 15 13 11 9 7 5 3 1-1 -3 3 25 2 15 1 5-5 -1-5 Weighted contributtion of food(prim+mfg) to Total WPI WPI Inflation rate (RHS) -15 7
Per cent Per cent 12 Drivers of Food Inflation 196s &197s 12 1 1 8 8 6 6 4 4 2 2-2 Cereals 1966-67 1967-68 Sugar and Allied Products Condiments and Spices Protein-based items Fruits and Vegetables Edible Oils Other Food Articles -2 1972-73 1973-74 1974-75 Cereals Fruits and Vegetables Sugar and Allied Products Edible Oils Condiments and Spices Other Food Articles 8 Protein-based items
Per cent Per cent 15 Drivers of Food Inflation 198s &199s 11 9 1 7 5 5 3 1979-8 198-81 1981-82 1-1 1991-92 1992-93 -5-1 Cereals Sugar and Allied Products Condiments and Spices Protein-based items Fruits and Vegetables Edible Oils Other Food Articles Cereals Fruits and Vegetables Sugar and Allied Products Edible Oils Condiments and Spices Other manufactured food 9 Protein-based items
Per cent Per cent 125 Drivers of Food Inflation 11 2s 15 9 85 65 7 45 5 25 5-15 26-7 27-8 3 1-35 Cereals Sugar and Allied Products Condiments and Spices Protein-based items Fruits and Vegetables Edible Oils Other manufactured food -1 28-9 29-1 21-11 211-12 Cereals Fruits and Vegetables Sugar and Allied Products Edible Oils 1 Condiments and Spices Other manufactured food Protein-based items
Per cent Proteins and Fruits & Vegs 6 Percentage contribution to food inflation 5 4 3 2 1 Pulses Milk & Milk Products Eggs, Meat and Fish Fruits and Vegetables 26-7 27-8 -1 11
Per cent 8 Proteins and Fruits & Vegs 2 Percentage contribution to food inflation 7 6 5 4 3 2 1 Pulses Milk & Milk Products Eggs, Meat and Fish Fruits and Vegetables -1 28-9 29-1 21-11 211-12 12
DEMAND FACTORS 13
Per cent Per cent Changing Consumption Patterns 1 MPCE Rural 1 MPCE Urban 8 36.8 4.6 45. 46.4 8 45.3 51.9 57.5 59.3 6 6 4 4 2 63.2 59.4 55. 53.6 2 54.7 48.1 42.5 4.7 1933-94 1999-24-5 29-1 food total non-food total Source: NSSO surveys, Various rounds 1933-94 1999-24-5 29-1 food total non-food total 14
Urban Engel Curves Decile-wise Monthly PCE on Select Food Items: All India (Urban) 25 2 15 1 5 5 45 4 35 3 25 2 15 1 5 Cereals and Substitutes 1 2 3 4 5 6 7 8 9 Protein Rich food 1 2 3 4 5 6 7 8 9 Source: Estimated from NSSO unit level data, 29-1 2 18 16 14 12 1 8 6 4 2 35 3 25 2 15 1 5 Fruits and Vegetables (Rupees) 1 2 3 4 5 6 7 8 9 Processed food and Beverages 1 2 3 4 5 6 7 8 9 15
Rural Engel Curves Decile-wise Monthly PCE on Select Food Items: All India (Rural) (Rupees) Cereals and Substitutes Fruits and Vegetables 2 14 18 16 14 12 1 12 1 8 8 6 6 4 2 4 2 1 2 3 4 5 6 7 8 9 1 2 3 4 5 6 7 8 9 3 Protein Rich food Processed food and Beverages 25 8 7 2 6 15 5 4 1 3 5 2 1 1 2 3 4 5 6 7 8 9 1 2 3 4 5 6 7 8 9 16 Source: Estimated from NSSO unit level data, 29-1
Income Elasticities Multiples of MPCE: Top Decile/Bottom Decile Rural Areas Urban Areas Cereals and Substitutes 1.7 1.9 Fruits and Vegetables 2.5 3.3 Protein Rich food 4. 4.4 Processed food & Beverages 3.1 9. Source: NSSO 29-1, GOI. 17
SUPPLY FACTORS 18
197-71 1972-73 1974-75 1976-77 1978-79 198-81 1982-83 1984-85 1986-87 1988-89 199-91 1992-93 1994-95 1996-97 1998-99 2-1 22-3 24-5 26-7 28-9 Stagnant Productivity in Pulses 7 Yield of pulses (Kg per hectare) 6 5 4 3 2 1 19
Andhra Pradesh Assam Bihar Chhattisgarh Gujarat Haryana Himachal Pradesh Jammu & Kashmir Jharkhand Karnataka Kerala Madhya Pradesh Maharashtra Orissa Punjab Rajasthan Tamil Nadu Uttar Pradesh Uttarakhand West Bengal 11 Productivity Differentials State-wise yield of total pulses in 29-1 (kg per hectare) 1 9 8 7 6 All India Average 5 4 3 2 1 Source: Ministry of Agriculture, GOI 2
Milk Yield (Hg/Animal) Growth in Yield (%) Slowing Growth in Milk Yields 1 9 8 7 6 5 4 3 2 1 5. 4.5 4. 3.5 3. 2.5 2. 1.5 1..5 196s 197s 198s 199s 2s Yield (Hg/Animal) Growth Rate (%) (RHS). Source: FAO 21
South-west Monsoon Rainfall 5 year moving average IMD-LPA is calculated every 1 years as the 5 years average i.e. 22 IMD LPA for 211-219 is 89 cm and is the average rainfall over the country as a whole for the period 1951-2.
POLICY IMPLICATIONS 23
Jul-Sep 28 Oct-Dec 28 Jan-Mar 29 Apr-Jun 29 Jul-Sep 29 Oct-Dec 29 Jan-Mar 21 Apr-Jun 21 Jul-Sep 21 Oct-Dec 21 Jan-Mar 211 Apr-Jun 211 Jul-Sep 211 Oct-Dec 211 Per cent Inflation and Inflation Expectations 2 15 1 5-5 HH Inflation Expectations WPI ALL Total Food Manufactured Non-Food Products 24
Rising Wages CPI-Rural Labourers Inflation and Wage Growth* Orrisa Jammu & Andhra Pradesh Maharashtra Assam Tamil Nadu Punjab West Bengal Karnataka Madhya Pradesh All-India Uttar Pradesh Meghalaya Rajasthan Kerala Himachal Gujarat Manipur Bihar Haryana Tripura 2 4 CPI-RL Inflation (21-11) Wage Growth (21-11) Haryana Tamil Nadu Bihar Jammu & Kashmir Karnataka Kerala Maharashtra All-India Madhya Pradesh Uttar Pradesh Orrisa Punjab West Bengal Rajasthan Assam Himachal Pradesh Andhra Pradesh Gujarat Meghalaya Manipur Tripura -1 1 2 3 4 CPI-RL Inflation (29-1) Wage Growth (29-1) 25 * Y-o-Y Growth in March; Rural Unskilled Labourer (Male) Wage. Source: Indian Labour Journal: Labour Bureau, Ministry of Labour.
Jun/95 Mar/96 Dec/96 Sep/97 Jun/98 Mar/99 Dec/99 Sep/ Jun/1 Mar/2 Dec/2 Sep/3 Jun/4 Mar/5 Dec/5 Sep/6 Jun/7 Mar/8 Dec/8 Sep/9 Jun/1 Mar/11 Per cent Million tonnes 25 Cereal Stocks and Prices 7 2 6 15 5 1 4 5 3 2-5 1-1 Cereal inflation Food stocks (RHS) 26
Policy Implications Persistence and Expectations Food inflation part of core inflation Wage-price feedback Persistent supply shock implies slower growth for any given rate of inflation Supply Responses Opportunities for productivity increases Product and region-specific constraints Threats from water scarcity Role of stocks 27