India has experienced persistent and high food inflation in the recent past What could be the reason...........

Economic Affairs Inflation

India has experienced persistent and high food inflation in the recent past. What could be the reasons?(UPSC 2011)

1. Due to a gradual switchover to the cultivation of commercial crops, the area under the cultivation of food grains has steadily decreased in the last five years by about 30%.

2. As a consequence of increasing incomes, the consumption patterns of the people have undergone a significant change.

3. The food supply chain has structural constraints.

Which of the statements given above are correct?

1 and 2 only

2 and 3 only

1 and 3 only

1, 2 and 3

छोटे Courses बड़े Results

Master Inflation

Prepare through Micro-courses

Try Now

Explanation:

In last 5 years, the area under food grain cultivation has been more or less the same ~ 124 million hectare.

Inflation can be described as the general rise in the price of goods and services in an economy over time. It’s calculated by tracking the increase in prices of essentials. The primary index that tracks the change in retail prices of essential goods and services consumed by Indian households is the Consumer Price Index or CPI.

A tight monetary policy may have a role in managing inflation if it is driven by excess demand. (Excess demand is due to increase in purhashing power of people, i.e. due to increase in incomes). But, the current spike in CPI inflation is driven by food inflation which is mainly a supply-side phenomenon, hence, restraining the role of monetary policy in curtailing it.

A rise in food inflation poses a dilemma for trade policy too. During periods of bumper harvest, prices are low, so import restrictions are put in place and when production is low, export curbs are imposed. This leads to uncertainty and distorts the market signals for producers.