Supply-side issues on top priority as Govt unleash measures to control food inflation

Close after Prime Minister Narendra Modi announced that the government would take a host of inflation control measures, several ministries have accelerated efforts in supply-side management so that domestic availability of food and other commodities is improved. Also, micro-monitoring has been started to check any malpractices that could disrupt domestic supplies.

The Commerce Ministry on Sunday issued a statement in which there is enough indication that proper monitoring has started to check traders do not take benefits of loopholes and start violating the larger objective set by the government.

Basmati rice

Highlighting that agri export promotion body APEDA has been asked to issue of Registration-cum–Allocation Certificate (RCAC) for basmati rice exports only if the contract value is $1,200 a tonne or more, the ministry said that a panel under Chairman of APEDA will scrutinise and evaluate if any exporter applies for RCAC at contract value below $1,200/tonne. The panel will try to understand the reason for lower contract price and find out whether the basmati route is used for export of non-basmati rice, it said.

“It has been noted that there has been large variation in the contract price of basmati being exported with lowest contract price being $359 a tonne quoted by one exporter, whereas the average export price is $1,214/tonne during August,” the ministry said. The panel has been asked to submit its report within a month based on which the government would decide if the MEP is to be lowered from $1,200/tonne.

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APEDA has also been directed to discuss with exporters and discourage them from using the basmati window for export of non-basmati rice.

A top official in Finance Ministry said the government is aware of the need for steps required to address supply-side constraints rather than relying only on monetary policy measures including interest rate hike. The official highlighted that even during the no-confidence debate in the Lok Sabha, Finance Minister Nirmala Sitharaman had announced how the government removed import restriction on tomato and facilitated the vegetable’s imports from Nepal so that domestic supplies in Varanasi, Lucknow and Kanpur get improved.

Import of pulses

The official also highlighted that India has started pursuing Mozambique for increasing pulses import to improve domestic availability and added that despite record production of wheat, its export has not been permitted. Further, the Food Corporation of India has been selling wheat and rice in open market through weekly auction, the official said.

On August 25, the Centre imposed a 20 per cent export duty on parboiled rice with immediate effect and valid until October 15 to curb a surge in shipments since July 20 when it banned exports of (non-basmati) white rice. Traders said that there could be full fledged ban on parboiled rice export, too after October 15 as prior to ban on raw non-basmati rice there was first 20 per cent duty.

Duty on onion

Even, the government recently imposed 40 per cent export duty on onion and there is now plan to put a high MEP on it to check under invoicing. On August 25, the Central Board of Indirect Taxes & Customs wrote to all the chief commissioners of Customs to ensure that assessment is done vigilantly so as to check any undervaluation during export of onion.

During the monetary policy committee meeting held earlier this month, RBI Governor Shaktikanta Das had said that while the vegetable price shocks (in July-August) are expected to correct quickly with the arrival of fresh crops, there are risks to the food and the overall inflation outlook from El Nino conditions, volatile global food prices and skewed monsoon distribution - all of which warrant close monitoring. In the non-food category, crude oil prices have also firmed up reflecting tighter supply conditions, he had said.

According to India Meteorological Department, monsoon rainfall despite June-July together was 5 per cent surplus, the overall rainfall in the country this year is 8 per cent below normal until Sunday since June 1 as there is 32 per cent deficit during August 1-27. Vegetables, spices, and cereals among other items pushed retail inflation based on Consumer Price Index (CPI) to a 14-month high of 7.4 per cent in July. The retail food inflation jumped to 11.5 per cent in July, a 39-month high, from 4.49 per cent in June.

“Against this backdrop, supply side measures need to be continued to prevent the spiralling of frequent food supply shocks into generalised economy -wide price impulses,” Das had said.

The Commerce Ministry statement said there was 15 per cent jump in rice export to 7.33 million tonnes (mt) during April 1-August 17, as against 6.37 mt year-ago despite the fact that this year export of broken rice variety is banned. It also pointed out the 21 per cent surge this year in parboiled non-basmati rice export during the same period to 3.29 mt from 2.72 mt year-ago. But the rise in basmati export is only by 9 per cent to 1.86 mt from 1.7 mt.

Export of non-basmati white rice, which was attracting an export duty of 20 per cent since September 2022, was banned completely last month. (With inputs from Subramani Ra Mancombu in Chennai)