Steps to curb inflation cost farmers ₹45, 000 crore: Study | Latest News India - Hindustan Times
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Steps to curb inflation cost farmers 45, 000 crore: Study

Sep 28, 2023 09:58 AM IST

Indian farmers have lost at least INR 450bn ($6bn) in income this year due to measures implemented to curb inflation, according to a paper by economists at the Indian Council for Research on International Economic Relations. High inflation, largely driven by food prices, has led the government to impose restrictions on the trade of food commodities and introduce export taxes, reducing farmers' incomes. The government has underestimated the impact of these measures, with the price of cereals remaining high. A deficient monsoon has also raised concerns over a fall in food output, particularly of pulses, sugar and oilseeds.

NEW DELHI A spate of measures to curb inflation, including a ban on cereal export, has potentially shaved off at least 45,000 crore worth of farmers’ income this year, according to a paper by a group of economists at the Indian Council for Research on International Economic Relations (ICRIER), a New Delhi-based think tank.

Steps to curb inflation cost farmers <span class='webrupee'>₹</span>45, 000 crore: Study
Steps to curb inflation cost farmers 45, 000 crore: Study

High inflation over the past one year has largely been driven by food commodities due to extreme weather. Retail inflation in August rose 6.83% from a year ago, higher than the Reserve Bank of India’s target of 4% (+/-2), according to official data. In the previous month, prices had climbed to a 15-month high of 7.44%.

The government has typically responded by imposing a range of restrictions on the trade of food commodities and slapping export taxes to boost supplies, which have dented farmers’ incomes, according to the paper led by Ashok Gulati. These measures to cool prices haven’t been effective so far, the paper said, pointing to continued high prices of cereals.

A deficient monsoon triggered by the El Nino weather pattern has heightened concerns about a fall in food output this year, especially of pulses, sugar and oilseeds. An El Nino is marked by a warming of the Pacific Ocean, whose impacts ripple around the globe. In India, most El Ninos disrupt the summer monsoon, which waters nearly half of the country’s net-sown area. Half the population of Asia’s third-largest economy depends on farm-based livelihood.

Indian policymakers often struggle to strike a balance between keeping food prices low for consumers and farm incomes high. Previous research led by Gulati, a well-known economist and former head of the federal body that recommends minimum support prices for crops, had shown that food policies have a pro-consumer, rather than a pro-farmer, stance.

India banned wheat export in May 2022 at a time of high global prices, after a fall in output due to a heat wave. Despite a record wheat output this year at 112 million tonne, prices remain high. To cool inflation, the government released its own stocks of the grain at substantially lower prices than market rates, suppressing farmers’ income.

“Our rough estimate of the collective loss incurred by farmers due to the sale of wheat at reduced OMSS (open market sales scheme) prices, is a staggering Rs. 45,283 crore,” the paper states.

Although the minimum rate of wheat had been fixed by the government at 2,125 a quintal (100 kg), market prices had risen to 2,673 a quintal in January this year. To drive down wheat prices, the government offered its own wheat at a substantially reduced price to traders, starting at 2,350 a quintal and later at 2,150.

“Without this market intervention, farmers could have potentially earned an additional 548 a quintal ( 2,673 minus 2,125) from their sales of wheat,” the study said. The release of government stocks had the effect of “dumping” of cheap goods.

Rice and wheat inflation have been in the double digits for nearly 12 months. To ease prices, the government had banned the export of broken rice in September last year and then barred export of white rice in July this year, cutting farmers off from lucrative overseas sales. India is the world’s largest rice exporter, with a 40% share in global trade.

Besides, the government has deployed several restrictive trade practices, such as imposition of minimum export price on higher-grade basmati rice at $1,200 per tonne and a 40% duty on overseas onion shipments in August 2023.

In a briefing on September 14, Union food secretary Sanjeev Chopra had said the government could take harsher measures to control food prices. Availability of key commodities, including rice, wheat and sugar, was sufficient but the government had found that attempts were being made to “create artificial scarcity on the pretence of a poor monsoon”, he said.

An earlier study led Gulati and ICRIER in collaboration by the Organisation of Economic Cooperation and Development (OECD), a grouping of 36 advanced economies, had found that the government’s priority of keeping food prices low was one of the key reasons for poor farm incomes.

Such policies “call for revisiting market restrictive policies and compensating farmers for the substantial transfer of resources from producers to consumers”, Gulati said. One of the recommendations in the study said the government should increase its amount of income transfer to farmers from 6,000 to 10,000 a year to offset losses.

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