Food Inflation in India: Causes and Consequences

Rudrani Bhattacharya () and Abhijit Sen Gupta
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Rudrani Bhattacharya: National Institute of Public Finance and Policy

Working Papers from National Institute of Public Finance and Policy

Abstract: Average food inflation in India during the period 2006-2013 was one of the highest among emerging market economies, and nearly double the inflation witnessed in India during the previous decade. In this paper, we analyse the behaviour and determinants of food inflation in India. We find that both demand and supply factors have contributed to the recent surge in food inflation in India. On the demand side, we test the often-cited hypothesis that rising per capita income and diversification of Indian diets has raised the demand for high-value food products and thereby added to inflationary pressures. We find that rise in demand, relative to the supply of a commodity, results in upward pressure in commodity prices. Moreover, rise in prices of key inputs, minimum support prices and fiscal deficits have also impacted the prices of various commodities. Agricultural wage inflation is found to be a universal driver of food commodities inflation, as well as the aggregate food inflation. The contribution of agricultural wages has increased significantly in the post-NREGA era. Our analysis indicates limited role of fuel and international prices. Finally, results suggest significant pass-through effects from food to non-food and to the headline inflation.

Keywords: Food Inflation; Engel Curves; QUAIDS Model; SVEC Model; India (search for similar items in EconPapers)
JEL-codes: E31 E37 Q11 (search for similar items in EconPapers)
Pages: 40
Date: 2015-06
New Economics Papers: this item is included in nep-agr and nep-mac
Note: Working Paper 151, 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Working Paper: Food Inflation in India: Causes and Consequences (2015)
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