Pressure On Food Prices 'Transitory', Says Finance Ministry
Pre-emptive measures to restrain food inflation is likely to subside price pressure in the market soon, the ministry says.
The Ministry of Finance maintained on Tuesday that the price pressure on food items was expected to be "transitory", buoyed by fresh arrivals in the market and the steady performance of the agriculture sector.
"The agricultural sector is picking up momentum with significant advancement in monsoon and kharif sowing," the Department of Economic Affairs said in its monthly economic review for July. "The procurement of wheat and rice has been progressing well, increasing the buffer stock levels of food grains to ensure food security in the country."
Retail inflation rose to a 15-month-high of 7.44% in July from 4.8% in June, primarily led by surging tomato prices due to domestic factors like white-fly disease and uneven monsoon distribution. The price of cereals spiked 13% in July, which the ministry attributes to Russia pulling out of the Black Sea grain deal.
As global trade remains subdued, its subsequent impact on India's exports has also remained adverse, pulling down merchandise exports in July amid shrinking demand in India's export markets like the US and Europe.
India's services sector has maintained its resilience, offering optimism to achieve trade targets. In July, exports of services continued to record an uptick, rising by 12% year-on-year, according to estimates by the Ministry of Commerce and Industry.
"Persistent geopolitical concerns continue to shadow the world trade growth, which is expected to decline to 2% in 2023 from 5.2% in 2022," the review said. "Yet, India's external sector has displayed resilience, with strong services export growth and robust investment inflows highlighting investors' confidence in India's growth story."
However, the ministry has maintained caution that the external sector would require a closer watch to strengthen merchandise export growth in the face of slowing global demand.
Looking Ahead
Domestic consumption and investment demand are expected to continue driving growth, while global and regional uncertainties and domestic disruptions may keep inflationary pressures elevated for the coming months, according to the ministry.
"Monsoon rains in August have been deficient at the time of writing. The government has already taken pre-emptive measures to restrain food inflation which, along with the arrival of fresh stock, is likely to subside price pressure in the market soon," it said.
Over the weekend, the ministry announced a 40% export duty on onions to manage domestic availability ahead of the lean season from September–December.
Crisil Ltd.'s August staple scene report said the trend of early harvest and panic selling earlier this year contributed to the current supply imbalance witnessed in August.
Crisil expects prices could increase from early September in the retail market reaching up to Rs 60–70 per kg during the lean patch.
In a written reply during the monsoon session of Parliament, Finance Minister Sitharaman said the government was monitoring the prices of vegetables like onions, prompting them to increase the buffer size for onions under price stabilisation fund.
The minister had noted that this would ensure onion release in major consumption centres during lean season.
