Reasons for frequent falling prices of food items
From September 2016 to November 2018, there are a total of 27 years or two hundred and twenty years. In these 27 months the rate of inflation of consumer food items in the country has remained consistently low at the rate of normal inflation. Of course, this is a relief for the government on the front of the inflation front, but the constant decline in the prices of food items is undoubtedly a major cause of concern for the rural economy.
Significantly, out of these 27 months, 5 months remained the same as the annual increase in the official consumer price index was negative. This means that we have to pay less for vegetables, pulses, sugar or eggs etc. than a year ago.
Wholesale Price Index and Consumer Price Index
Statistics of these two indices measuring the retail and wholesale inflation of the country are released every month, but due to lack of basic knowledge of these two indices it is difficult to understand them. The wholesale price index and consumer price index are two important parameters for estimating inflation.
Through the data of Consumer Price Index, the government is aware of the current situation of inflation. The Reserve Bank has also made the main determinant Consumer Price Index for its monetary policy since April 2014. Most of the world’s countries use consumer price index to assess inflation.
The inflation rate based on wholesale price index has been used in making policies in India. The increase in the prices of the group of commodities in bulk markets has been increased annually, it is estimated through wholesale price index of inflation. In India, it is calculated on three types of expensive rate- the cost of primary commodities, fuel and manufactured commodities, on the basis of shortfall.
Things like deflation are becoming
It may sound weird in the hearing, but the truth is that today the biggest concern of the government in the country is to keep constantly falling prices of food items. In November, the consumer price index i.e. retail inflation was at 17-month low level of 2.33%, which was 3.31% before a month. The main reason for this decline is the decrease in the value of various essential food items. Compared to a year ago, there was a huge reduction in food prices by 6.96%. Such deficiencies in food prices have almost created a situation like ‘deflation’, which has never been seen before in India’s history.
What is deflation? Deflation conditions are precisely vomiting with inflation. Inflation increases prices of commodities, whereas in the case of deflation, the prices of commodities constantly decrease. It can have political and economic impacts. Its effect is reflected in economic effects, when there is a difference between the estimates of the Reserve Bank and the actual estimates of inflation. Due to continuous reduction in food prices, there is dissatisfaction in the agriculture sector.
Demand and supply theory
Due to low demand and higher production, farmers are not able to get reasonable prices for their produce. The decrease in the prices of food items is due to their growing production in the country and the lower prices in international markets. This also reduces agricultural exports from the country, whereas the risk of import of the country in the country remains constant. Trying to understand it with the help of an example – Recently, onion bumper crop was harvested in Maharashtra. The production was so much that the prices went up in the abyss and the farmers were forced to throw their produce on the streets or sell them at a price of two and a half times. Their cost of production could not even go out. At the same time, rural demand also decreases and it has very adverse impact on landless laborers.
Liquidity: With this, the aspect of liquidity is also not less important. The trade of agricultural produce in India is mainly based on cash. Its best example was seen in the era of monopolization in 2016. Then there was a shortage of cash in the market, so the farmers had got the right price for their produce, so far, they were difficult to reach the buyer. The simplest principle of most work in economics is the principle of demand and supply described above. If the demand is high and supply is low, inflation increases. Demand for wheat and rice is increasing in the country, but prices are not growing. The condition is that farmers have to agitate to increase their produce. On the other hand, whenever there is a situation for farmers getting good yield of their produce, the country’s agricultural marketing system is united by making every effort to ensure that farmers do not get better yield of their produce.
Urban class gets relief
On the one hand, where the prices of food items are low, the pressure on rural or agricultural economies increases, while the low-middle class living in the cities gets relief from it. Due to the low cost of goods due to limited income, they get the facility to spend on other items. On the other hand, due to lower prices, the Reserve Bank also has ease in reducing interest rates.
What to do?
- First of all, it must be kept in mind that the income received from the agricultural sector is the main source of livelihood for the farmers. Therefore, keeping in mind the focused income point of view, it is extremely important to make radical changes in the agriculture sector.
- Under these, there is a need to focus on the aim of reducing the cost of agriculture and ensuring the farmers’ remuneration for their products while ensuring high productivity.
- Special emphasis has to be made to streamline procurement process and public distribution system (PDS) network.
- There will be a mechanism in which the farmers can get MSP at 50% or more from their production cost as well as maximize profits.
- There are also other ways to increase income for reducing the difficulties of the small and marginal farmers especially in the agricultural sector.
- Due to the volatile income of the farmers due to the risks related to production, market and prices, there will be ways to increase the income of the farmers, which can be effective for a long time.
- Due to reduced labor force and rising costs, agriculture is becoming less profitable and non-profitable. In this case, there is a lot of potential for increasing the income of the farmers in the processing and value addition of agricultural produce.
The dissatisfaction among the farmers is an indication of the fact that the development we talk about is not related to the villages, but it is from the mathematics of the market, which makes its place between production and value. It seems to be the speed of development, but its effect is not known at all. This confusion gets more when 60 percent of the country’s agro-based and rural people do not have any sense of it and this development does not get them to see far into their agricultural produce prices.
Source: The Hindu, The Indian Express, PIB