Food price pressures due to adverse weather conditions: Economic Survey

The agriculture sector in FY23 and FY24, was affected by extreme weather events, lower reservoir levels, and damaged crops that adversely affected farm output and food prices. As per the Economic Survey tabled in the Parliament on Monday, food inflation based on the Consumer Food Price Index (CFPI) increased from 3.8 per cent in FY22 to 6.6 per cent in FY23 and further to 7.5 per cent in FY24. 

As per the Economic Survey, the government took prompt actions, including open market sales, retailing in specified outlets, and timely imports, to ensure an adequate supply of essential food items

Additionally, to ensure food security for the poor, the Pradhan Mantri Garib Kalyan Anna Yojana, which provides free food grains to more than 81 crore beneficiaries, was extended for a period of five years starting from January 2024, said the Economic Survey document. 

Consistent with the decline in the all-India average retail inflation rate in FY24 compared to FY23, inflation in most States and Union Territories (UTs) decreased. The inflation rate was less than 6 per cent in 29 out of the 36 States and Union Territories.

While India successfully managed to keep retail inflation at 5.4 per cent in FY24, there was a decline in global inflation because of the diminishing impact of price shocks, particularly in energy prices, as well as lower core inflation and monetary tightening, the Economic Survey document added. 

According to the Economic Survey 2023-24 tabled in the Parliament on Monday, despite the synchronous tightening of monetary policy by most central banks to restore price stability, the global economy has shown unexpected resilience in 2023. 

“This is evident in both advanced economies (AEs), and emerging markets & developing economies (EMDEs), as they are returning to their inflation targets. This trend is also observed in India. As per the IMF2 data, where India’s inflation rate was lower than the global average and that of EMDEs in 2022 and 2023. 

Since 2020, countries have been facing challenges in controlling inflation. In FY23, Consumer Price Index (CPI) based retail inflation in India was primarily influenced by higher food inflation, while core inflation remained moderate. Externally, the Russia-Ukraine war led to price pressures, while domestically, excessive heat in the summer and uneven rainfall put pressure on food prices. 

However, since May 2022, monetary policy broadly focused on absorbing excess liquidity in the system by increasing the policy repo rate by 250 basis points from 4 per cent in May 2022 to 6.5 per cent in February 2023. Thereafter, the policy rate was kept unchanged by focusing on the gradual withdrawal of accommodation, aiming to align inflation with the target, while  simultaneously fostering growth. Consequently, the persistent and sticky core inflation observed in FY23 declined to 3.1 per cent in June 2024.

Core inflation is measured by excluding food and energy items from CPI headline inflation. It assesses the underlying price trends by largely eliminating the impact of price volatilities arising from transitory supply shocks. The following discussion splits core inflation into its goods and services components. Core goods are further split into consumer durables and consumer non-durables.