India often referred to as the “breadbasket of Asia,” has a rich agricultural history and is one of the world’s largest producers of rice and wheat. According to official production statistics, the country has witnessed a significant increase in grain production over the past few years. However, this increase in production is not reflected in the rising cereal prices, which have been soaring at double-digit rates since September 2022, leading to concerns about food security and affordability for millions of Indians.
National Food Security Act (NFSA) 2013
The NFSA, enacted in 2013, marked a paradigm shift in India’s approach to food security, shifting from a welfare-based model to a rights-based approach. Under this act, up to 75% of the rural population and 50% of the urban population are legally entitled to receive highly subsidized food grains through the Targeted Public Distribution System (PDS). The eldest woman in the household, aged 18 or above, is mandated to be the head of the household for ration card issuance, promoting women’s empowerment.
Recent Shift in NFSA Entitlement
Starting in January 2023, the NFSA entitlement was restored to the original level of 5 kg of food grains per person per month, which was prevalent before April 2020. However, this means that the same ration cardholders now have to purchase rice and wheat from the open market, where they are affected by the double-digit cereal inflation.
The Current Situation of Cereal Inflation
Cereals and their products have seen a staggering inflation rate of 12.71%. This category contributes about 22.8% to the overall Consumer Price Index (CPI) inflation, as it holds a substantial weight of 9.7% in the food group within the CPI basket. The inflation rate for wheat stands at 12.37%, and rice inflation stands at 11.78%. These soaring prices are causing economic strain on households across India.
Depleting Grain in Government Stocks
One of the reasons behind the government’s inability to provide additional grain per month to NFSA beneficiaries is the depleting stocks of rice and wheat in government godowns. This has even led some state governments, like Karnataka, to provide cash instead of the promised extra 5 kg of free rice to poor households.
Government Measures to Tame Cereal Inflation
- Wheat Export Ban: Since May 2022, the government has banned wheat exports to ensure domestic availability.
- Rice Export Ban: In July, exports of non-basmati rice were prohibited, and a 20% duty was levied on parboiled non-basmati rice exports in August.
These actions are aimed at increasing domestic grain availability and preventing hoarding and speculation that often accompany shortages.
Paradox of Bumper Crop and Rising Cereal Prices
One of the most puzzling aspects of the current situation is the contradiction between record grain production and rising cereal prices. Government data indicates an 11.2 million-ton increase in India’s rice output between 2020-21 and 2022-23, along with a 3.2 million-ton increase in wheat production. These numbers contradict the prevailing narrative of a grain shortage.
However, the higher production levels are not being effectively utilized for procurement, and government grain purchases have fallen, particularly for wheat. Even after accounting for procurement and exports, the domestic market supplies of rice and wheat have seemingly increased over the last two years. This raises the question of why cereal inflation remains in double digits.
Solutions to Tame Wheat and Rice Inflation
- Reducing Import Duty: To alleviate the inflationary pressures, the government could consider reducing the import duty on wheat from the current 40% to a more reasonable level, such as 10%. This would allow for cheaper imports and increased supply in the market.
- Release Excess Stocks: To address rising rice prices, the government could release excess stocks into the open market at lower prices than the Food Corporation of India (FCI) currently offers. This would help stabilize prices and ensure affordability for consumers.
- Revision of CPI Weights: There is a need to revise the weight of food and beverages in the CPI basket, which is currently based on outdated 2011 consumption data. With rising per capita income, people are likely to spend less on food. Adjusting these weights in line with current consumption trends could lead to a more accurate representation of CPI inflation.
UPSC Mains Questions
- What are the implications of the recent changes in the NFSA entitlement on India’s cereal market, and how do they affect the common citizens?
- Despite increased grain production, cereal prices remain high. What factors might explain this paradox, and how can the government address it effectively?
- What role does government policy play in stabilizing cereal prices, and what are the consequences of recent measures such as export bans and stockholding limits?
- How can the government revise its approach to food inflation, including import duties and CPI basket weights, to ensure more accurate reflection of inflation rates and better control over rising prices?
