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Economy

Explainer: Food Inflation Is Not New. So What’s Making Us Feel the Pinch in Our Pockets This Time?

Rising inflation is taking a toll on Indians, particularly in rural areas, due to a combination of factors, including stagnant incomes and increasing living costs.

New Delhi: Inflation is not a new phenomenon. Food prices go up every year. However, the recent surge in food prices is causing significant financial strain for many in India.

So what is making us feel the pinch in our pockets this time? Here’s all you need to know in this explainer.

Not just tomatoes, prices of other vegetables are rising too

While it appears to have started with the skyrocketing prices of tomatoes, the prices of other vegetables have also shot up.

The price of tomatoes in retail markets rose to Rs 250 per kg, in August, making it more expensive than petrol (Rs 97 per litre in Delhi). In July, tomato prices soared to Rs 129 per kg in some Delhi markets and Rs 150 per kg in Uttar Pradesh’s Moradabad.

Meanwhile, ginger prices touched Rs 300 per kilogram mark in Visakhapatnam, in May. The prices of garlic and green chilly also rose by 70% and 50%, respectively. Prices of brinjal, okra, beans, pumpkin and cauliflower also rose.

A trader told the Times of India that the north Andhra Pradesh districts receive ginger from Kerala, Tamil Nadu and Karnataka. And since this time the yield fell short of the expectations, prices soared.

Additionally, the surge in prices of onions, which are used in almost every meal, added to the pain for consumers.

According to Reuters, the average wholesale onion price in key markets has jumped nearly 20% from July to August, to Rs 2,400 ($28.87) per 100 kilogram on concerns that erratic rainfall would lead to lower yields.

Therefore, to tame domestic prices, India has imposed with immediate effect a 40% export duty on onions up to December 31.

But farmers in Maharashtra – the largest onion producing state in India – are not happy. They have protested against the government’s decision saying the move will prevent them from getting good prices for the vegetable.

Representative image. Onion prices touched Rs 45-50 per kg in Kolkata as Nashik, a major onion producing district in Maharashtra, remains the only source of supply for the state. Photo: PTI

Now, amid export curbs, the government has decided to procure onions from farmers at a “historic price” of Rs 2,410 a quintal. It will sell onions at a subsidised rate of Rs 25 a kg in areas that have reported high prices for the vegetable.

The Times of India reported on August 23 that onion prices touched Rs 45-50 per kg in Kolkata as Nashik, a major onion producing district in Maharashtra, remains the only source of supply for the state.

Experts told the newspaper that there are fears that onion prices might hover around Rs 60-80 per kg during the upcoming festive season.

Last month, the government imposed export curbs on non-basmati white rice sales to dampen price rises.

The food economy

When the food supply doesn’t match up with the demand for food, prices rise.

The year didn’t start on a good note for farmers as unseasonal rains and heatwaves destroyed several crops. Heat waves can cause wilting, stunting or early ripening of crops, leading to lower production and high prices.

Unseasonal rainfall destroyed over 18 kinds of standing crops ranging from chickpeas to wheat and maize, to tomatoes, cashew and mangoes, CNBC TV-18 reported. These were Rabi crops. Then monsoons were delayed and Kharif crops like tomatoes, eggplant, beans and bottle gourd took a hit as well, the report added.

India’s annual retail inflation in July rose to its highest in 15 months as vegetable and cereals prices skyrocketed. This has put pressure on the government to take action to bring down prices.

Also read: Rural Areas Reported Higher Retail Inflation Than Urban Areas in December: Data

When inflation goes up, the purchasing power goes down

When inflation goes up, the purchasing power, or how much the same amount of money can buy, goes down. In other words, you need more money to buy the same set of goods.

With skyrocketing tomato prices, even McDonald’s and Burger King dropped tomato from its Indian menu. However, it’s equally disappointing for the poor people whose food bill is persistently increasing amid stagnant wages. A person could afford the rise in food prices only if their income rises according to inflation. But is that happening?

Rising inflation is taking a toll on Indians, particularly in rural areas, due to a combination of factors.

Article-14 reported how stagnating wages and rising costs have increased rural distress in India. In 2016, before the Union government abruptly banned Rs 500 and Rs 1,000 notes, the daily wage at the Girnare chowk for female agricultural workers was around Rs 250. Over the last seven years, this increased to Rs 350, Ranjana Magar, a 55-year-old daily wage labourer, told the news outlet.

However, it was easier to get by then, even with less money, she added.

“Everything has become more expensive,” she said. A daily purchase of 250 gm of vegetables cost her Rs 10 then, up to Rs 20-Rs 25 now; the round-trip fare to Girnare was Rs 40, up to Rs 60 now.

Vegetable vendors in Lucknow, Delhi and Chandigarh told Hindustan Times that the vegetable prices increased between 20% and 60% in a matter of ten days.

But inflation is not new. In 2021, tomato prices witnessed a rise of 142%. This is because states which are key suppliers of tomato like Karnataka, Andhra Pradesh and Maharashtra experienced above normal rainfall.

So why does food inflation appear to be hurting people’s pockets more this time?

Incomes have not been increasing in India. The Financial Express reported, in July, that rural wages contracted for the 16th straight month up to March.

Therefore, stagnant wages coupled with increasing living costs have exacerbated the impact of inflation in India.

For the first time in 18 years, food costs crossed 40% of monthly spends in 2017-18, for urban households in Maharashtra, The Hindu reported, in July, citing data from the National Statistical Office’s 2017-18 Household Consumption Expenditure Survey.

The situation is worse for rural households whose food bill shot up to almost 49% of total spending, with that figure crossing 60% for the poorest 5% of households, the report added.

Furthermore, unemployment rates have been on the rise, primarily driven by seasonal joblessness in rural areas.

The unemployment rate jumped to 8.45% in June from 7.68% in the previous month, according to the Centre for Monitoring Indian Economy. It rose above 8% for the third time this year, Bloomberg reported.

Also read: Is Food Inflation in India Driven by Demand or Supply?

How does food inflation affect the average Indian consumer’s cost of living?

Food is a fundamental necessity, so when food prices rise, it directly affects the daily expenses of households.

Since a substantial portion of an average Indian household’s budget is allocated to food, any increase in food prices can lead to a significant increase in overall expenses.

And, as earlier mentioned, when food inflation goes up, purchasing power goes down.

This can also lead to a lower standard of living for many families, because rising food prices may lead families to change their consumption patterns. For instance, people may opt for less nutritious foods such as fruits and vegetables that can lead to long-term health issues.

Note that 74.1% of the Indian population, i.e. three in every four Indians cannot afford healthy food, according to a joint report by FAO, IFAD, UNICEF, WEP and WHO.

Are there social consequences of persistent food inflation?

A high inflation rate increases poverty and inequality.

A given amount of money buys less as prices rise. So either the individual buys less than earlier or has to shell out more money to buy the same amount as earlier. In the former case, the living standard of the individual falls. In the latter case, the savings of the individual decline. Either way, individuals lose unless their incomes rise at least at the same rate as the price rise. This is called indexation of incomes to prices, retired Jawaharlal Nehru University professor Arun Kumar explained in this piece written for The Wire.

And India has extreme inequality.

About 60% of India’s nearly 1.3 billion people live on less than $3.10 (approximately Rs 250) a day, the World Bank’s median poverty line. And 21%, or more than 250 million people, survive on less than $2 (approximately Rs 166) a day.

Meanwhile, the richest 10% in India controls 80% of the nation’s wealth, according to a 2017 report published by Oxfam, an international confederation of agencies fighting poverty. And the top 1% owns 58% of India’s wealth.

Put simply, in India, the wealth of 16 people is equal to the wealth of 600 million people.

In 2021, the Times of India cited a report saying per capita consumption of vegetables and fruits per person has shown only marginal improvement in the last five years.

Moreover, not being able to afford vegetables and fruits, amid rising inflation, can result in psychological stress and anxiety among individuals and families.

For instance, a 60-year-old landless farmer, Vishnu Potinde, told Article-14 that what used to cost Rs 200 now costs Rs 500 and what used to cost Rs 500 now costs Rs 1,500. “But our daily wage has stayed constant between Rs 200 and Rs 300.”