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In simple terms inflation or price rise is caused by too much money chasing too few goods,
or, demand being more than supply.


 



The high food price inflation is having a significant impact on the Indian consumer in general
and the Indian middle class in particular. The chart below gives the way the Indians spend.

As evident from the chart above, nearly 43% of the personal disposable income goes into
food products. Unfortunately, this is the segment which is experiencing highest inflation. A
high food inflation ensures that consumers have to cut back on their spending (on non-
necessary items). This in turn will impact the consumption part of the GDP growth.

On the other hand, inflation for an average household is easily around 12-15% (even
education, health and housing cost are going up).
Thus, a large section of the population is losing out on their purchasing power without
realizing about it..

Considering these factors, it is very important for the Government to try and control the
inflation or at least try and ensure that these circumstances do not arise again in the future. As
mentioned above, there are several ways of curbing food inflation. It is only that the
Government needs to be more proactive rather then being reactive.

Government is an important player in the market..

Inflation in the food sector spilled to other sectors causing the rise in overall inflation.

India has come a long way in case of food grain productivity 

Production may be slightly short of demand considering the huge population. Such inflation
can be checked by importing.
Problem is actually the middlemen 
There is a huge difference between the cost of production and the price the final consumer
pays. The farmer gets a very small amount of this profit/difference of cost and final price.
For example ± If we are buying a vegetable for Rs. 40 per kg., the dealer at the wholesale
market gets Rs. 10 per Kg., and the poor farmer gets a meager Rs. 3. Again this Rs. 40 too
will differ depending on the locality it is being sold. Then there is always the problem of
black marketing & illegal stocking of goods to get a higher price. So we actually need checks
on the middlemen and the retailers.

The system of direct farm to shops has to be developed, so that the farmers are the real
beneficiaries. This will also motivate the farmers to increase production.

Wastage is another important avoidable problem, leading to shortage. Production we have

raised. But so much is wasted because we still are a laggard when it comes to state of the art
storage facilities.

Even the government¶s huge food buffer stock lies unused till it gets finally rotten.

The government has raised the 


 of some food items.

This along with the rural employment schemes and high urban salaries has also infused
excess money in the market causing the inflation.
petroleum price volatility²which tends to be high²translates to food price volatility through
transportation costs and fertilizer prices. The link has become even stronger with the advent
of biofuels, which require food crops as inputs and can therefore change food prices.

Because the demand for food is inelastic, small changes in supply can lead to big changes in
prices, meaning that even limited crop yield volatility can have large effects on food price
fluctuations. The role of crop yield variability is only expected to rise as extreme weather
events become more common.

Food price volatility is inversely related to the level of food stocks²as stocks fall, price
volatility rises. Both public and private actors have lowered stocks in recent years. This trend
may be reversing itself, however, as countries are revising their reserves policies in response
to recent bouts of volatility.

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