Research Journal of Agricultural Sciences 2012, 3 (1): 288-292 Impact of Food Inflation on Indian Economy Somanagouda I Patil, Chidanand Patil, Ganeshagouda I Patil and Vijaychandra Reddy Division of Agri-Business Management, University of Agricultural Sciences Dharwad – 580 005, Karnataka, India e-mail: ganeshpatil.phd@gmail.com A B S T R A C T In India inflation is actually measured by the Y-o-Y variation in the wholesale price index. It helps in understanding the movement of prices relating to bulk transactions of purchases, usually for further sale. The inflation can be controlled through certain control measures like monetary measures, Fiscal measures, Physical or non monetary measures and the consumers should follow seven tips to tackle inflation i e buy in bulk and store products whose prices are likely to go up, consumers should take advantage of attractive offers at discount chains, start cutting down on discretionary consumption, do comparison shopping, downgrade if your favorite brand is a premium one and the category doesn’t have much differentiation, control your consumption of high-priced items, use substitutes and postpone consumption of certain items. While, government has undertaken suitable measures such as ban on export of essential commodities and bank has varied reserve ratios such as CRR (6%) Repo rate (6.50%) SLR (24%), even the saving bank deposit’s rate of interest has been hiked to overcome problem of inflation. But still inflation is not under control, there is a full scope for combating it for greater extent. Key words: Food, Inflation, Indian economy Inflation is a continuous and substantial rise in general level of prices of goods and services over time. Inflation can be thought of as a decrease in the value of the unit of currency. Mainly there are four types of inflation namely creeping inflation, walking inflation, running inflation and galloping or hyperinflation. Impact food inflation on Indian economy was due to effects of food inflation- this may be classified into three kinds they are, effects on production (that is changes in the routine of economic activity), effects on income distribution (that is, redistribution of income and wealth) and effects on the consumption and welfare. Effects on production- inflation have a favorable effect on production when there are under-utilized or under-employed resources in existence in an economy. Rising prices breed optimistic expectations within the business community, in view of increasing profit margins, because the price level moves up at a faster rate than the cost of production. Effects on income distribution- all producers, traders and speculators gain during inflation because of the windfall profits which arise, since prices rise at a faster and higher rate than the cost of production. Poverty and spending on food- 6.52 crores of the Indian families are below the poverty line, 2/3 rd of the income earned by the poorer sections of the country spent on only food, 90 per cent of the population in India spends more on Food and 78 per cent of India’s population has monthly income of Rs. 5,000 to Rs. 25,000. Types of Inflation Creeping inflation: A sustained rise of prices is less than 3 per cent per annum. Walking inflation: When rise in prices falls in range of 3 per cent to 6 per cent. Running inflation: When sustained rise of prices is about 10 per cent per annum. Galloping or hyperinflation: When sustained rise of prices is 16 per cent or more per annum. Inflation is caused due to several economic factors The inflation was caused due to several economic factors like: when the government prints money in excess, prices increase to keep up with the increase in currency, leading to inflation. Increase in labour costs, have a direct impact on the price of the final product, resulting in inflation. When countries borrow money, they have to cope with the interest burden. This interest burden results in inflation. High taxes on consumer products, can also lead to inflation. Demands pull inflation, wherein the economy demands more goods and services than what is produced. Inflation: Trend and structure The average rate of annual inflation, based on the WPI (1993-94) was close to 6 per cent during 1994-95 to 2004- 05. Inflation in food items, which includes food articles as well as food products, was 5.64 per cent, and it was lower than the inflation in prices of non-food commodities. The average rate of inflation among various food items varied between 4 per cent and 7.5 per cent. The lowest inflation during this period was experienced in sugar and the highest in fruits and vegetables. After 2005, food prices increased at a much faster rate than non-food prices, except in 2008 when the prices of commodities spiked in India and in the global market. Food and non-food prices showed a disparate movement after January 2009 (Fig 1). On an annual basis, food prices in 2009 increased by more than 12 per cent over 2008, in contrast to the 1.76 per cent decline in non-food 28 8 www.rjas.info Case Study