Recently, the RBI raised the repo rate by 40 basis points (bps) and the cash reserve ratio (CRR) by 50 bps with a view to tame inflation.
GS-III: Issues related to Direct and Indirect Farm Subsidies and Minimum Support Prices; Public Distribution System – Objectives, Functioning, Limitations, Revamping; Issues of Buffer Stocks and Food Security; Technology Missions; Economics of Animal-Rearing.
Dimensions of the Article
- How effective would be the rate hike in taming the inflation?
- Opportunities and challenges for India
- Need for rationalizing Food Subsidy
- Way Forward
How effective would be the rate hike in taming the inflation?
- High inflation is always an implicit tax on the poor and those who keep their savings in banks.
- Will the increases in the repo rate and CRR control inflation, especially food inflation?
- The RBI has been behind the curve by at least by 4-to 5 months, and its optimism in controlling inflation in the earlier meetings of the Monetary Policy Committee was somewhat misplaced.
- The reason for this is that food prices globally are scaling new peaks as per the FAO’s food price index.
- The disruptions caused by the pandemic and now the Russia-Ukraine war are contributing to this escalation in food prices.
- India cannot remain insulated from this phenomenon.
Opportunities and challenges for India
- Record wheat export: For the first time in the history of Indian agriculture, cereal exports have already crossed a record high of 31 million metric tonnes (MMT) at $13 billion (FY22), and the same cereal wonder may be repeated this fiscal (FY23).
- Among cereals, wheat exports have witnessed an unprecedented growth of more than 273 per cent, jumping nearly fourfold from $0.56 billion (or 2 MMT) in FY21 to $2.1 billion (or 7.8 MMT) in FY22.
- Rice exports have crossed 20 MMT in FY22 in a global market of 50 MMT.
- Some of the concerns on the wheat front are genuine, and we need to realise that climate change is already knocking on our doors.
- With every one degree Celsius rise in temperatures, wheat yields are likely to suffer by about 5 MMT, as per earlier IPCC reports.
- This calls for massive investments in agri-R&D to find heat-resistant varieties of wheat and also create models for “climate-smart” agriculture. We are way behind the curve on this.
Need for rationalizing food subsidy
- India distribute free food to 800 million Indians, with a food subsidy bill that is likely to cross Rs 2.8 lakh crore this fiscal out of the Centre’s net tax revenue of about Rs 20 lakh crore in FY23.
- Reducing coverage: What needs to be done targeting only those below the poverty line for free or subsidised food and charging a reasonable price, say 90 per cent of MSP, from those who are above the poverty line.
- Giving an option to beneficiaries to receive cash in their Jan Dhan accounts (equivalent to MSP plus 20 per cent) in lieu of grains can be considered.
- This is permitted under NFSA and by doing so, he can save on the burgeoning food subsidy bill.
Indian farmers need access to global markets to augment their incomes, and the government must facilitate Indian farmers to develop more efficient export value chains by minimizing marketing costs and investing in efficient logistics for exports.
Source – The Indian Express