Quick Take | How deflation in food prices played a role in BJP’s election debacle

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Quick Take | How deflation in food prices played a role in BJP’s election debacle

Manas Chakravarty

One reason for why the BJP lost the three states in the Hindi heartland can be seen in the November 2018 retail inflation numbers. The inflation in rural Chhattisgarh compared to a year ago was (-)2.69 percent. That is deep in deflationary territory and although the Consumer Price Index (CPI) is not the ideal measuring rod for farm prices, it does give some indication of rural distress. The deflation is in food prices, as is evident from the All-India Consumer Food Price Index (CFPI), which in November was down 2.6 percent from a year ago. Clearly, the tall promises of higher minimum support prices haven’t translated into higher market prices.

In rural Madhya Pradesh, consumer prices were up a mere 0.67 percent from a year ago. In Rajasthan, they were slightly higher, up 1.3 percent.

lower-farm-inflation

The chart shows the fall in food prices across India in recent months. This is good for urban consumers and has dragged down the overall inflation rate. The bond market is already salivating at the prospect of lower interest rates. But farmers are likely to take a more jaundiced view of the matter, more so because fuel prices have risen on the one hand and retail inflation in the ‘miscellaneous’ category is over 6 percent. With industrial output picking up and capacity utilisation rising, the output gap is more or less closed, which implies ‘core’ inflation or non-food, non-oil inflation is going to go up and companies are likely to see more pricing power. In short, the terms of trade are against the agriculture sector.

Add to that the fact that in the ‘agriculture, forestry and fishery’ segment, the recently released GDP data shows that inflation according to the GDP deflator was also in negative territory. Growth in agriculture too has consistently been lower than growth in other sectors of the economy.

It isn’t just Chhattisgarh that is seeing deflation in rural areas. Rural Telangana also has deflation, but perhaps other factors, including the much-acclaimed Rythu Bandhu scheme of direct income support for farmers have helped offset the distress. Andhra Pradesh, Himachal Pradesh, Maharashtra, Odisha and Jharkhand are the other states facing rural deflation. No wonder there’s so much talk of a mega loan waiver for farmers.

Images are for reference only.Images gathered automatic from google.All rights on the images are with their original owners.

2018-12-14 10:53:32

Images are for reference only.Images gathered automatic from google.All rights on the images are with their original owners.

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