India’s food inflation has become a cause for concern and the centre of recent policy debates. While the price trends of major food items in the basket of Consumer Price Index (CPI) have largely been governed by their domestic production and supply scenario, the price trends in cereals have been in stark contrast with their record domestic production during the past few years. Inflation of cereals and products sub-group remained elevated in the range of 7-17 per cent since July 2022.

Although cereal inflation moderated to 6.88 per cent in November 2024 on a year-on-year basis, it continued to rise at about 0.9 per cent on a month-on-month basis.

At the same time, domestic production of cereals reached record output of 288 million tonnes (MT), 303.6 MT and 308 MT in 2021-22, 2022-23 and 2023-24 respectively, according to Agriculture Ministry estimates.

Cereals and products account for for 9.67 per cent in the total weight of CPI and almost a fourth of the Consumer Food Price Index (CFPI). As a result, any major change in its prices significantly impacts both food inflation as well as general inflation.

The source

Rice and wheat, with respective 4.75 and 2.73 weight in the cereal and products sub-group, contribute for about (49 per cent + 28 per cent) 77 per cent of the sub-group’s total weight, 9.67.

Further, when the products of rice and wheat are included, their contribution becomes roughly 92 per cent of total sub-group’s weight. Other major cereals including maize, ragi, jowar and bajra put together contribute for only 4.5 per cent of total sub-group’s weight.

So rice and wheat play a major role in the movement of food prices.

Interestingly, on the supply side also rice and wheat account for about 81-82 per cent of total cereal production on average during the last three years from 2021-22 to 2023-24.

Further, the notable rise in output of cereals to record levels during the last few years has been also contributed primarily by rice followed by wheat.

Cause of paradox

Procurement of rice too has risen in sync with the rising output, from 38 MT in 2016-17 to 60 MT in 2020-21 and moderating slightly to 57 MT.

Consequently, the stocks of rice with central pool also increased from about 16.5 MT in September 2016 (rice marketing season Oct-Sep) to 22 MT in Sep 2020 and further to 32.3 MT in Sep 2024.

In addition, (non-basmati) rice exports also jumped up from about 4 MT in 2019-20 to 13 MT in 2020-21 to over 17 MT in 2021-22 and 2022-23, according to APEDA data and dipped to 11 MT in FY24 after the government imposed an export ban in July 2023.

Apparently, the substantial increase in procurement together with significant rise in exports exceeded the increase in output levels particularly during 2019-20 to 2022-23 leading to a tight supply situation in the domestic open markets thereby driving rice prices steadily upwards since August 2022. Rice inflation remained elevated with a double-digit inflation from September 2022 to August 2024.

In case of wheat, output increased moderately from about 98.5 MT in 2016-17 to 113.3 MT in 2023-24 though declined marginally in 2021-22 to 107.7 MT. Wheat procurement increased from about 38 MT in (wheat marketing season April-March) 2020-21 to a high of 43 MT in 2021-22.

Consequently, wheat inflation witnessed a double-digit increase from April 2022 and reached a peak of 25.3 per cent in February 2023 but moderated thereafter primarily due to high-base effect. Prices of rice and wheat are still rising steadily as evident by their individual item indexes.

Thus, it is evident from the trends in domestic production, procurement and stocks that the unlimited procurement and supply interventions have apparently contributed for the steady rise in prices, particularly of rice during the past two years or so, notwithstanding the increased output.

Further, the unlimited procurement of rice has also been discouraging crop diversification to pulses, nutri-cereals, oilseeds, etc despite substantial raise in their minimum support prices (MSPs).

Under such scenario, it is essential to rationalise the price support with a judicious mix of limited procurement and deficit payment options. It is imperative to limit the procurement to the extent required for buffer stocks and public distribution.

This can help in promoting crop diversification from rice to environmental friendly crops like pulses and oilseeds. Towards this, efficient post-harvest marketing linkages and infrastructure are vital.

Amarender is Joint Director, ICAR-National Institute of Biotic Stress Management (ICAR-NIBSM), Raipur; Lingareddy is Senior Economist, Sustainable Finance and Agriculture, Mumbai. Views expressed are personal