Analysis: Why Prices Are Soaring And Possible Solutions

It's that time of the year when prices of some essential commodities go up. This is a recurring phenomenon. We do see some mitigation plans, but they are obviously not good enough to keep the prices stable. Resilient Indians change their food habits. Tomato puree sachets pass for tomatoes in dishes. The soaring prices of kitchen staples like tomatoes, chillies, garlic, and ginger have been straining the finances of the common man since May.

Data collected from various sources shows a pan-India increase in food prices, with spices and pulses also taking a hit. Vegetables like brinjal, chillies, ginger, garlic, coriander and lady's finger have all seen an upsurge in prices. The average price of ginger has been Rs 250-350 per kg, green chillies cost between Rs 170-250 per kg and garlic is selling at Rs 250-300 per kg.

Tomatoes retailing in the range of Rs 130 -200 per kg in metros and rural areas have become prohibitively expensive for housewives who use it in curries, rasam and chutneys, and the humble street-food vendors, who use it in tomato sev puri, pav bhaaji and chaats. Even the mighty McDonald's has dropped tomatoes from its burgers and wraps at some of its restaurants, citing supply shortages and quality concerns. Cumin too has become costlier, retailing at more than Rs 500 per kg.

Agriculturists and sellers blame the steep hike on weather vagaries like heatwave and unseasonal rainfall; the Manipur violence and the shortage of a cold storage chain have also upset the supply chain, creating shortages in the market, resulting in price rise.

For ginger, traders are mostly dependent on the northeastern states supplying a bulk of their produce to other states. But the Manipur unrest has led to massive logistical problems, with transport badly affected.

The high cumin prices are due to strong domestic and export demand and a scarcity of supply due to lower yields in the two main producers, Gujarat and Rajasthan. There is a huge demand for cumin from the Gulf countries, followed by the US, Europe, China and Latin American countries. This has left consumers back home with less cumin to temper their daal (pulses), which too have seen a price spike.

Professor NK Chaudhary, former Head of Economics at the Patna University, says, "With the increase in the income and consumer profile, people are opting for good and nutritious food on their plates. Every year, during this period, the production and supply of vegetables and fruits are impacted by the rain. So, the supply is further reduced, resulting in price rise."

India is one of the largest producers of fruits and the second largest producer of vegetables in the world, yet one sees surging prices every year. One of the major reasons for food waste is its perishability. A major chunk of the produce is lost by the time it reaches the retail consumer. Building an efficient cold chain infrastructure, which includes refrigerated transport, pack houses, collection centres and humidity and temperature-controlled cold storage, are some of the doable steps that the government can encourage for the long-term storage of agricultural products, which will ensure smooth and continuous supply and control food inflation.

In May, retail inflation touched a 25-month low at 4.25 per cent, on an annual basis, staying within the Reserve Bank of India's (RBI) upper tolerance limit of 6% for the third consecutive month. The RBI projects inflation at 5.2% and is optimistic that CPI (consumer price index) inflation will be moderate this fiscal.

The figures are reassuring, for now, but the unprecedented rise in prices of essential commodities is expected to trigger a substantial increase in retail inflation data for June.

In its recent annual economic review, the finance ministry highlighted the significant impact of El Nino, exacerbating the situation for consumers.

States like Tamil Nadu, Kerala, and Andhra Pradesh have come to the rescue of the people by setting up a market intervention fund or price stabilisation fund and supplying vegetables at subsidised rates through government outlets. But elsewhere, the poor and the middle class are bearing the brunt. "Market intervention is absolutely necessary. But the governments are not serious. They have left everything to the mercy of the market. Ever since the privatization and globalization policy was put in place, governments in general have had an ideological shift. Except in certain special circumstances during the COVID and election times, the government has left the economy to market forces. Monitoring middlemen and those dealing with supplies, along with plugging loopholes in the public distribution system, will be effective," Prof Chaudhary says.

Sharp inflation dents overall GDP growth. Inflation affects purchasing power, which, over time, formats the spending and buying habits of people. India is pegged to be one of the fastest-growing economies; a protracted spell of inflation will impact its overall economic progress. More so when general elections are not even a year away. In our country, elections are fought, won, and lost on the plank of price rise.

(Bharti Mishra Nath is a senior journalist.)

Disclaimer: These are the personal opinions of the author