Food prices and the Indian growth story

Food price inflation has been in the news in recent months and years, both around the world and in India. In India, the reality is compounded by the fact that overall inflation, as measured by the consumer price index, has also been high recently. For example, according to an Indian Finance Ministry document that I downloaded from their website, from April-June 2009 to April-June 2010, Indian nominal GDP grew 21.7% and real GDP grew 8.8%. From this, one can form an idea that overall inflation was probably higher than 10% during this period in India. I am using “ probably “ because latest official numbers are difficult to come by.

A document I downloaded from the Reserve Bank of India website tells me that in 2009-10, food price inflation outpaced overall consumer price inflation by about 3%. If one considers specific food items like sugar or wheat, the prices have gone on a wild ride in recent months and years. Once again, the internet has a lot of information about this issue, but obtaining official numbers isn’t easy. However, a reasonably clear picture emerges from the available news items and documents. The very recent overall price inflation in India may be due to the money that was pumped into the economy in the aftermath of the global financial crisis back in 2008-09. However, food prices are going up not just due to this component, but also due to their own supply-demand dynamics. In fact, for some food items like sugar and wheat, supply-demand may well be the deciding factor. Again, I have to use phrases like “ may well be “ because with the documents I am going by, it is not that easy to reach quantitative conclusions that are both official and reliable or both credible and reliable.

But the thing I am really trying to come to is what the food price inflation means for the advertisement of the growth story in India. For many in India, which has a large number of poor, food prices form a major component of daily and monthly expenditure. As a quick and dirty calculation, one can take the 3-4% by which food price inflation is higher than overall inflation, and subtract it from the real GDP growth. Subtract another 1% for population growth. As far as the reality of day-to-day existence goes for a vast majority of Indians, this means that the advertised real GDP growth rate of 8.8% is not the true story. The reality is more like the doldrums. And basic food security is at risk for many. Remember, the weighted average consumer price index incorporates food items, fuel prices, rents, automobiles, luxury items and other items. For those living at the edge of poverty, and for whom food security is the critical issue, the food price increase matters way more than the overall consumer price index. And from this perspective, the growth story repeated in the media based on the overall GDP is grossly misleading.

That trickle-down in India happens too slowly to enable inclusive growth is a fact that is backed by the experience of distant decades and recent decades. The recent food price problem is proof that not only is trickle-down too slow, but when it comes to affordability of basic items, it may well be non-existent. It is time for the proponents of laissez-faire and trickle-down in India to face up to the fact that further complacency based on blind belief in these concepts can lead to disastrous consequences. What may be a short-term supply-demand morass, if not attended to with the sense of urgency it deserves, can turn into the long-term systemic human rights nightmare of the future.