After moderation in last 6 years, inflation shows reversal on costlier veggies, pulses: Survey

New Delhi, Jan 31 (PTI) India's inflation started moderating in the past six years but there was a reversal from August 2019 driven by costlier onion, tomato and pulses, as unseasonal rains disrupted supplies besides an output shortage, according to the Economic Survey 2019-20.

The government intervened with measures, including imports and trade restrictions, and is also implementing price stabilisation fund (PSF) to help moderate volatility in prices of commodities such as pulses, onion and potato, said the Survey presented by Finance Minister Nirmala Sitharaman in Parliament on Friday.

'Untimely rains have caused lower production as well as constricted the movement of onion and tomato to the markets. In the case of pulses, the progress in sowing has been at much lower levels than in the previous year,' the Survey said.

It also said the global economy has been witnessing a steep fall in inflation over the past five decades. Inflation has declined in almost all the countries around the world.

'In India, inflation has been witnessing moderation since 2014. However, recently, inflation has shown an uptick,' said the Survey.

Major driver of consumer price or the retail inflation was on account of articles under the 'miscellaneous group' in 2018-19, and for the current financial year (April-December), food and beverages emerged as the main contributor to retail inflation, with 54 per cent of the inflation during this period attributable to this group.

'Miscellaneous' group was the second-largest contributor to inflation during this period.

'Among food and beverages, inflation in vegetables and pulses was particularly very high, mainly driven by low base effect and production side disruptions due to untimely rain,' said the Survey.

The Consumer Price Index (CPI)-based inflation has increased to 4.1 per cent during the April-December period of the current financial year, against 3.7 per cent in the same period of the previous fiscal.

On the other hand, the Wholesale Price Index (WPI)-based inflation fell to 1.5 per cent during the period under consideration from 4.7 per cent in the year-ago period. There was an increase in WPI-based inflation during 2015-16 and 2018-19.

Staple food onion's retail prices started to rise from April and its inflation rose up by 328 per cent in December 2019. WPI-based inflation of onion during the month also increased to 455.8 per cent, compared to a decline of (-) 63.8 per cent in December 2018.

Tomato also witnessed a rise in retail prices from July 2019 and peaked to an inflation print of 35.2 per cent in December.

People paid as high as Rs 200 for a mere one kg of onion in some cities of the country, while the prices hovered in the range of Rs 120-150 elsewhere. Likewise, tomato prices also surged to Rs 60-80 a kg.

CPI-based inflation of pulses increased from (-)20.2 per cent in January 2018 to 15.4 per cent in December 2019.

'However, a comparison of the inflation trend of pulses item-wise reveals that the current hike in prices of various pulses compared to their long-term trends is not very high,' the Survey said.

It also said the phase of price rise during 2019 could be due to fall in acreage resulting from rains in the growing states and also because of low price realisation due to glut in the market following increased production of earlier years.

The production of pulses increased to 231.3 million tonnes in 2016-17 from 163.5 million tonnes in 2015-16, a jump of 41 per cent in a span of one year. In 2018-19, the acreage marginally declined to 290 lakh hectare, as compared to 298 lakh ha and 294 lakh ha in 2017-18 and 2016-17, respectively.

'Low market prices during 2018-19 may have resulted in significant reduction in acreage of some pulses,' the Survey said.

It also said the government takes various measures from time to time to stabilise prices of essential food items, including utilising trade and fiscal policy instruments such as import duty, minimum export price, export restrictions, imposition of stock limits and advising states for effective action against hoarders and black marketers, to regulate domestic availability and moderate prices.

Also, the government incentivises farmers by announcing minimum support prices (MSPs) for increasing production and is implementing other schemes, it said.

The Survey has recommended measures to safeguard farmers through procurement under price stabilisation fund to help regulate the price volatility of important agri-horticultural commodities and also added that MSP needs to be made more effective.

'Besides, the government is also implementing price stabilisation fund (PSF) to help moderate the volatility in prices of agri-horticultural commodities like pulses, onion, and potato. Onion prices saw a hike during 2019-20 starting from August, 2019, and various measures were taken by the government to ease the situation,' it said.

The Survey also highlighted the changing inflation dynamics over time with evidence for a strong reversion of headline inflation to core inflation.

Future inflationary prospects and inflation dynamics crucially depend on overall macroeconomic scenario as well as the containment of rising prices in certain agricultural commodities, the Survey said. PTI KPM HRS