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SPECIAL ARTICLE

Agrarian Performance and Food Price


Inflation in India
Pre- and Post-Economic Liberalisation
Sthanu R Nair, Leena Mary Eapen

Examining long-term trends in food inflation in India in


relation to the performance of the Indian agricultural
sector under various agrarian policy regimes, this paper
shows that despite the slowdown in the agricultural
sector and higher increases in the cost of food
production during the post-economic reforms period
(19922013), food prices were relatively low compared
to the initial (196780) and the maturing (198092)
stages of the Green Revolution. This, it is argued, is
possibly due to more stable agricultural growth
post 199192, higher buffer food stocks, greater
coverage of the public distribution system, and better
responses to food price fluctuations due to import/trade
liberalisation and a more comfortable foreign exchange
reserves position.

1 Introduction

he post-economic reforms (post-ER) period1 in India has


been characterised by a slowdown in the growth rate of
overall agricultural output and crop yields due to various reasons (Bhalla and Singh 2009; Desai et al 2011). In the
context of persistently high food price inflation in India over
the last few years, it was argued that the supply constraint
causing high food prices was rooted in the slow growth of
Indian agriculture in the post-ERs period (Carrasco and
Mukhopadhyay 2012; Desai et al 2011; GoI 2012). However, a
clear understanding of the food price situation during the
post-ERs period as a whole and its connection with the
slowdown in agricultural growth during the same period is yet
to emerge.
Against this background, this paper aims to examine the
trends in food price inflation in India in relation to the growth
of Indian agriculture pre- and post-ERs, so as to enhance our
understanding of food price behaviour during the post-ERs
period, which has been a period of slow agricultural growth.
For this purpose, following Bhalla (2007), Bhalla and Singh
(2009), and Panagariya (2004), the growth path of Indias agriculture sector is divided into four phases: the pre-Green Revolution
period (195051 to 196465),2 the initial stage of the Green
Revolution (196768 to 197980), the maturing stage (1980
81 to 199192), and the post-ERs period (199293 to 201213).3
The paper is organised as follows. Section 2 presents a brief
performance analysis of Indian agriculture under various
agrarian policy phases in terms of growth in agricultural gross
domestic product (GDP) and food output. In Section 3, the
trends in wholesale price index (WPI) food inflation witnessed
during various agrarian policy periods are discussed. Section 4
offers possible reasons for the price trends that emerged under
agrarian policy regimes. The last section summarises the findings of the paper and draws policy conclusions.
2 Performance of Indian Agriculture

The authors are thankful for valuable comments and suggestions from
an anonymous referee of this journal and participants of seminars and
conferences held at Central University of Kerala, IIM Calcutta, IIM
Kozhikode, and the National Institute of Public Finance and Policy,
New Delhi. The usual disclaimer applies.
Sthanu R Nair (srn@iimk.ac.in) and Leena Mary Eapen (leenaeapen@
iimk.ac.in) are with the Indian Institute of Management, Kozhikode.
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2.1 Pre-Green Revolution (195051 to 196465): At the time of


independence, India witnessed an acute shortage of food due
to the disruption caused to the agricultural sector following the
partition of British India in 1947 (Bhalla 2007; Swaminathan
2012). Partition led to loss of rich fertile lands to Pakistan and
large-scale migration of populations across the borders. The
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SPECIAL ARTICLE

government met the countrys immediate food requirement


through large-scale import of food aid, primarily using the PL
480 programme of the United States (US). In addition, serious
attempts were made to attain self-sufficiency in food production by way of large public investment in agricultural infrastructure, implementation of land reforms and rural developmental schemes (Bhalla 2007; Chandra, Mukherjee and
Mukherjee 2008).
2.2 Initial Stage (196768 to 197980): The agrarian
stagnation during the first half of the 1960s eventually led
to the introduction of a new high yielding varieties (HYV)
seedfertiliser strategy, popularly known as the Green
Revolution, starting from 1966.4 The influence of this new
strategy on the performance parameters of Indian agriculture
was not encouraging during the initial stage (196768 to
197980). This is evident from the noticeable drop in the
growth rate of agricultural GDP, output and yield of all the
major crops except wheat during this stage (Tables 1 and 2).5
Several factors are believed to have contributed to this outcome (Bhalla 2007; EPW 1967a, 1967b). They include mainly
limited crop (only wheat) and geographical coverage (only
Punjab, Haryana and Western Uttar Pradesh) of the Green
Revolution strategy to start with; the after effects of the 1965
and 1971 IndiaPakistan wars; and the oil crises of 197374
and 197879.
2.3 Maturing Stage (198081 to 199192): Consequent to the
spread of the HYVseedfertiliser strategy to more crops and
almost all geographical areas, Indias agrarian economy witnessed a revival during the Table 1: Compound Annual Growth Rates
of Gross Domestic Product (GDP) and
1980s. Compared to the Agricultural GDP (Base: 200405)
(%)
initial stage of the Green Period
Total
Agricultural
GDP
GDP
Revolution, the growth
195051 to 196465
3.95
2.66
rate of agricultural GDP,
196768 to 197980
3.45
2.19
output and yield of a ma198081 to 199192
5.21
3.09
jority of crops recorded 199293 to 201213
7.01
2.92
an improvement between Data for 201011 are second revised estimates
198081 and 199192 (RE), for 201112 are first RE and for 201213
are provisional.
(Tables 1 and 2). The GDP Source: Handbook of Statistics on Indian Economy
growth figure of 3.09% (HSIE) 201213, Reserve Bank of India (RBI).
pa achieved by the agricultural sector during this period is the
highest till date. Another landmark achievement was the
emergence of yield as the predominant contributor to foodoutput growth.6
2.4 Post-Economic Reform (199293 to 201213): The economic liberalisation strategy introduced in India in June 1991
had no explicit mandate to liberalise the Indian agriculture
sector and integrate it with the global economy (Bhalla 2007;
Chand, Raju and Pandey 2007; Landes and Gulati 2004).7 This
together with a host of other factors contributed to the deterioration in the overall performance of Indian agriculture during
the post-ERs period.8 The growth rate of output and yield of a
majority of food commodities decelerated significantly between
199293 and 201213 (Table 2). On the other hand, the growth
50

rate of agricultural GDP declined slightly to 2.92% pa during the


same period (Table 1).9
3 Trends in Food Prices

We examined the monthly movements (Figures 1 and 2, p 51) of


two components of WPI food inflation (Base: 200405), namely,
primary food articles and manufactured food products, during
the four agrarian periods described earlier to identify episodes
of high and persistent food inflation during each period, and
to calculate the average inflation rate in each such episode
(Tables 3 and 4, p 52).10 Since most studies have suggested a
threshold level of inflation of about 6% for India (Table 2 in
Pattanaik and Nadhanael 2011) we considered the persistence
of inflation of 6% and above as a high inflationary episode. The
average inflation rate recorded in an episode, say from June 1972
to May 1975, is calculated based on the change in the average
value of the WPI over this period with respect to the average value
of the WPI over the corresponding period (June 1971 to May 1974)
the year before. The findings of our analysis are as follows:
Since April 1954 India experienced 14 episodes of high food
articles inflation (Table 3).11 On all these occasions, the impact
of the price build-up was broad-based, implying that almost all
the commodity subgroups under the food articles category
were subject to high inflation.12 The longest episode of high
food articles inflation were the 62 months from July 1979 to
August 1984, followed closely by 61 months from March 2008
to March 2013, and 57 months from June 1963 to February 1968.
The inflationary episode that had the highest average food
articles inflation of 20.22% was during the 36-month period
from June 1972 to May 1975.
During the pre-Green Revolution period, high food articles
price inflation occurred on four occasions (Table 3). The average inflation recorded during these inflationary episodes
ranged from 8.5% to over 15%. In the 13 years covering the
initial stage of the Green Revolution, India experienced three
Table 2: Compound Annual Growth Rate of Production and Yield of
Various Food Commodities
Items

195051 to
196465
Output
Yield

196768 to
197980
Output Yield

198081 to
199192
Output Yield

(%)

199293 to
201213
Output
Yield

Total foodgrains

3.54

2.12

2.16

1.73

2.74

3.01

1.58

1.57

Cereal

3.76

2.43

2.47

2.08

2.87

3.20

1.59

1.68

Rice

4.35

2.86

1.95

1.18

3.71

3.12

1.38

1.34

Wheat

4.27

1.53

5.48

2.30

3.63

3.24

1.93

1.12

Coarse cereals

2.75

1.68

0.72

1.81 0.01

1.73

1.45

2.58
0.91

Pulses

2.19

0.40

-0.54

-1.08

1.33

1.27

1.34

Nine oilseeds

3.54

0.89

1.83

0.67

6.06

2.73

2.03

1.75

Sugar cane

6.36

3.07

2.79

1.16

3.67

1.44

1.48

0.01

Tea

3.33*

2.76

1.87

1.99

0.03

Coffee

5.01*

2.67

1.17

2.33

-0.23

Milk

1.64

- 2.23

5.14

4.15

Egg

4.63

- 6.49

7.71

5.95

Fish

5.14

3.35

- Not available; * From 197071 to 197980; From 195051 to 196061 based on pointto-point data; - From 196061 to 197980 based on point-to-point data.
Source (Basic Data): (i) Department of Agriculture and Cooperation (DAC), Ministry of
Agriculture (MoA), Government of India (GoI) (For foodgrains, oilseeds); (ii) HSIE 201213
(for sugar cane, tea, coffee); (iii) Annual Report 201213, Department of Animal Husbandry,
Dairying and Fisheries, MoA, GoI (for milk, egg, fish).

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SPECIAL ARTICLE
Figure 1: Monthly Movements in Food Articles Inflation Rate (April 1954 to March 2013)
40

Initial stage of Green Revolution

Pre-Green Revolution Period

Maturing stage of Green Revolution

Post-economic reforms period

35
30
25
20
15
10
5
0
-5
-10
-15

April-54
May-55
Jun-56
Jul-57
Aug-58
Sep-59
Oct-60
Nov-61
Dec-62
Jan-64
Feb-65
Mar-66
Apr-67
May-68
Jun-69
Jul-70
Aug-71
Sep-72
Oct-73
Nov-74
Dec-75
Jan-77
Feb-78
Mar-79
Apr-80
May-81
Jun-82
July-83
Aug-84
Sep-85
Oct-86
Nov-87
Dec-88
Jan-90
Feb-91
Mar-92
Apr-93
May-94
Jun-95
July-96
Aug-97
Sep-98
Oct-99
Nov-2000
Dec-01
Jan-03
Feb-04
Mar-05
Apr-06
May-07
Jun-08
July-09
Aug-10
Sep-11
Oct-12

-20
-25

See Table 3.
Source (Basic Data): (i) HSIE (March 2006), RBI and Central Statistics Office (CSO) (http://eaindustry.nic.in/).

Figure 2: Monthly Movements in Food Products Inflation Rate (April 1972 to March 2013)
Initial stage of Green Revolution

Maturing Stage of Green Revolution

Post-economic reforms period

Apr-72
Jan-73
Oct-73
Jul-74
Apr-75
Jan-76
Oct-76
Jul-77
Apr-78
Jan-79
Oct-79
Jul-80
Apr-81
Jan-82
Oct-82
Jul-83
Apr-84
Jan-85
Oct-85
Jul-86
Apr-87
Jan-88
Oct-88
Jul-89
Apr-90
Jan-91
Oct-91
Jul-92
Apr-93
Jan-94
Oct-94
Jul-95
Apr-96
Jan-97
Oct-97
Jul-98
Apr-99
Jan-2000
Oct-2000
Jul-01
Apr-02
Jan-03
Oct-03
Jul-04
Apr-05
Jan-06
Oct-06
Jul-07
Apr-08
Jan-09
Oct-09
Jul-10
Apr-11
Jan-12
Oct-12

80
75
70
65
60
55
50
45
40
35
30
25
20
15
10
5
0
-5
-10
-15
-20
-25

See Table 4.
Source: As in Figure 1.

episodes of high food articles inflation. The peak average inflation rate recorded during these episodes was 20.22% with the
lowest being 10.96%. During the maturing stage of the Green
Revolution that spanned 12 years, food articles price build-up
occurred on three occasions with average inflation rates ranging
from 9.88% to 15.11%. Notably, the duration of the inflationary
episodes witnessed during this stage was longer compared to
other stages. Since the introduction of economic reforms, India
experienced four episodes of high food articles price inflation.
The average inflation rate recorded during these episodes
ranged from 9.22% to 12.99%.
Since April 1972, the period from which data is available, high
inflation of the food products group struck India on 11 occasions,
the longest being the 72-month period from April 1989 to
March 1995 (Table 4). The period from April 1979 to June 1981
had the highest average inflation rate of 37.72%. Except for the
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periods from December 1976 to June 1977 and from April 2011
to June 2012, on all other occasions, the impact of food products
price build-up was spread across a majority of food items.13
The initial and maturing stages of the Green Revolution had
three episodes of high food products inflation each (Table 4).
The average inflation recorded during the three episodes of
high inflation in the initial stage of the Green Revolution
ranged from 15% to 37.72%. The same figures for the maturing
stage were 8.68% to 10.86%. During the post-ERs period, India
experienced five episodes of high food products price inflation
with the average inflation rate ranging from 7.29% to 12.20%.
Our literature survey reveals that each episode of food
articles and food products inflation identified were triggered
by a host of factors (Table 5, p 53). In addition, our analysis of
yearly movements in growth of food output and WPI inflation
rates of food reveals that on most occasions the spike in food
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SPECIAL ARTICLE

prices with respect to a particular food commodity was preceded by a supply shortfall.
A comparison of average food articles and food products inflation rates experienced during the various phases of agricultural growth reveal that despite the decline in agricultural GDP
and food output growth rates, the post-ERs period saw lower
food inflation compared to the maturing stage of the Green Revolution (in case of food articles), and the initial and maturing
stages of the Green Revolution (in case of food products). On an
average, the food articles inflation rate recorded during the maturing stage of was 10.20% against 7.86% recorded during the
post-ERs period (Table 3). In the case of food products, the postERs period saw an average inflation of only 5.94% as against
12.57% and 7.24 % recorded during the initial and maturing
stages, respectively (Table 4).14 The prices of the majority of individual food articles and food products turned out to be lower, on
average, in the post-ERs period compared with the maturing
stage of the Green Revolution (Table 6, p 54). Moreover, the peak
average inflation rate recorded in any given episode of high
food inflation was the lowest during the post-ERs period for food
articles (12.99%) and second lowest for food products (12.20%).
4 Understanding the Food Price Trends

We offer the following explanations for the relatively low food


price inflation during the post-ERs period notwithstanding the
slowdown in agricultural growth.
Table 3: Average WPI Inflation Rate (Base: 200405) Recorded during
Various Episodes of Food Articles Price Inflation
Period

Pre-Green Revolution period (195455 to 196465)


March 1956 to August 1957
July 1958 to May 1959
May 1962 to November 1962
June 1963 to March 1965
Overall period (April 1954 to March 1965)
Initial stage of Green Revolution (196768 to 197980)
June 1972 to May 1975
February 1977 to January 1978
July 1979 to March 1981
Overall period (April 1968 to March 1981) #
Maturing stage of Green Revolution (198081 to 199192)
April 1981 to August 1984
April 1986 to February 1989
April 1990 to February 1993 @
Overall period (April 1981 to February 1993)
Post-economic reforms period (199293 to 201213)
June 1994 to April 1997
May 1998 to April 1999
October 2005 to September 2007
March 2008 to March 2013
Overall period (March 1993 to March 2013)

Duration
(in Months)

Inflation
Rate (%)

18
11
7
22
-

15.02
9.91
8.50
13.70
4.48

36
12
21
-

20.22
13.15
10.96
5.98

41
35
35
-

11.67
9.88
15.11
10.20

35
12
24
61
-

11.47
12.99
9.22
11.16
7.86

The period up to March 1981 is included under initial stage of GR because the reason
for high food inflation recorded during April 1980 to March 1981 was the decline in food
production in 197980, which falls under initial stage of GR.
# The year 196768 is not included under initial stage of GR because the high food inflation
witnessed during this year was due to crop failure for two successive years in 196566 and
196667. The year 196768 was an excellent year for Indian agriculture.
@ The period up to February 1993 is included under maturing stage of GR because the root
cause of high food inflation experienced during April 1992 to February 1993 was the poor
growth of agriculture sector in 199192, which falls under maturing stage of GR.
Source (Basic Data): As in Figure 1.

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4.1 More Stable Food Production: A striking feature of Indias agrarian performance during the post-ERs period was the
growth of agricultural output and GDP, though lower, was
more stable. This is evident from the low standard deviation of
the year-on-year growth rate of output of a majority of food
commodities, and of agricultural GDP in the post-ERs period
compared with earlier periods (Table 7, p 54). The implication
of this finding is that even if the rate of agricultural growth is
slow, low fluctuations in growth cause few disruptions in food
supply, thereby contributing to low food price inflation. On the
other hand, high agricultural growth may not guarantee low
food prices if it is accompanied by frequent fluctuations in
growth. This is evident from the experience of the maturing
stage of the Green Revolution. The high growth performance
of Indian agriculture during this period was made possible due
to the extraordinary growth achieved in just three years,
namely, 198081, 198384 and 198889. The year-on-year
growth of agricultural GDP during these three years was
14.44%, 10.75% and 16.85%, respectively. The same figure for
foodgrains output was 18.13%, 17.64% and 21.07%, respectively. In all the other years during the maturing phase, the
growth rates of agricultural GDP and foodgrain output were
either negative or quite low.
4.2 Shift in Food Consumption: An analysis of food expenditure patterns at current prices prior to the economic reforms
period (196768 to 199394), based on the household consumer expenditure survey conducted by the National Sample
Survey Office (NSSO) on a quinquennial basis, reveals that a
secular shift in food consumption pattern in favour of highvalue food items has occurred in India during the maturing
stage of the Green Revolution (1983 to 1994).15 This is evident
Table 4: Average Inflation Rate (Base: 200405) during Various Episodes
of Food Products Price Inflation
(%)
Period

Duration
(in Months)

Initial stage of Green Revolution (197273 to 197980)


April 1972 to June 1975
December 1976 to June 1977
April 1979 to June 1981
Overall period (April 1972 to June 1981)
Maturing stage of Green Revolution (198081 to 199192)
April 1983 to August 1984
February 1986 to October 1988
April 1989 to March 1993 @
Overall period (July 1981 to March 1993)
Post-economic reforms period (199293 to 201213)
April 1993 to March 1995
December 1996 to March 1999
March 2003 to January 2005
January 2008 to July 2010
April 2011 to March 2013
Overall period (April 1993 to March 2013)

Inflation
Rate (%)

39
7
27
-

15.00
18.31
37.72
12.57

17
33
48
-

10.57
8.68
10.86
7.24

24
28
23
31
24
-

12.20
9.46
7.29
10.20
7.64
5.94

The period up to June 1981 is included under initial stage of GR because the cause of
high food inflation recorded during April 1980 to June 1981 lies in negative growth of food
production in 197980, which comes under initial stage of GR.
@ The period up to March 1993 is included under maturing stage of GR because the root
cause of high food inflation experienced during April 1992 to March 1993 was the poor
growth of agriculture sector in 199192, which falls under maturing stage of GR.
Source (Basic Data): As in Figure 1.

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Figure 3: Contribution
Overall Food Inflation
Figure 3:toContribution
to Overall Food Inflation (%) (%)
120
Other food products

100
Sugar,
khandsari
& gur

80

Edible oils
Condiments
and spices

60

Fruits and
vegetables

Per cent

from the following three trends that emerge from Tables 8 and 9
(p 57).16 First, the drop experienced in the expenditure share
of cereals both in rural and urban India during 198388 was
not only significantly more than in other periods, but were historic highs. Second, except sugar, all the high-value food commodities registered highest expenditure shares both in rural
and urban areas during 198394. Third, the highest percentage point increase recorded in the expenditure shares of
pulses, milk, sugar, edible oil, vegetables and fruits in rural
India was during 198394. These trends suggest that the
rising demand for high-value agriculture products was one of
the key factors contributing to the historically high average
food price inflation rate recorded during the maturing stage of
the Green Revolution. This is clearly reflected in Figure 3,
which shows that besides the important role of edible oils, the
contribution of high-value food commodities, namely protein
foods, fruits and vegetables to overall food inflation has increased
markedly in the maturing stage of the Green Revolution
compared with the initial stage.17
The shift in food consumption demand during the maturing
stage of the Green Revolution might be due to two reasons.
First, as documented in literature on Indias economic growth,
after experiencing low and stagnant growth during the first
three decades after independence, the Indian economy grew
at a noticeably high rate during the 1980s (De Long 2003;
Nagaraj 2000; Panagariya 2004; Rodrik and Subramanian
2008). This seems to have triggered, for the first time since

40
Protein
foods

20
Cereals

0
Initial State of GR

Maturing State of GR

Post-ERs Period

(a) Protein foods include pulses, milk, dairy products, egg, meat and fish; (b) Other food
products include grain mill products and oil cake.
Source (Basic Data): As in Table 3.

Notes:

independence,
the diversification of Indian diets. Second, the
Source (Basic Data):
significant increase in the real agricultural wages during
1980s might have pushed up rural demand for high-value food.
The growth of real agricultural wages was highest during the
maturing stage of the Green Revolution. For instance, real
wages for male agricultural labour grew 3.75% between 1983

Table 5: Factors Contributing to Various Episodes of High Food Inflation in India


Inflationary Episodes

Reasons for High Inflation

June 1972 to May 1975 (food articles) and April 1972 to June 1975
(food products)

February 1977 to January 1978 (food articles), December 1976 to June


1977 and April 1979 to June 1981 (food products)

July 1979 to August 1984 (food articles) and April 1983 to August 1984
(food products)

April 1986 to February 1989 (food articles) and February 1986 to


October 1988 (food products)
April 1990 to February 1993, June 1994 to April 1997, May 1998 to April
1999 (food articles), April 1989 to March 1995 and December 1996 to
March 1999 (food products)

October 2005 to September 2007 (food articles)

March 2008 to March 2013 (Food articles), January 2008 to July 2010
and April 2011 to March 2013 (food products)

Crop loss in 1971 due to flood situation, in 1972 due to drought and in 1974; uncertainty
caused by the 1971 IndoPak war; additional demand for food due to influx of Bangladesh
refugees resulting from 1971 IndoPak war; successive increases in the procurement price;
higher central issue prices; absence of a robust system of government procurement,
buffer stocking and public distribution; delay in importing food; panic situation created
by the dwindling foreign exchange reserves; stoppage of concessional food imports using
soft loans; and speculative behaviour by traders
Excess liquidity in the agricultural and trading sectors leading to bullishness in the
grain market; short-fall in rice production due to scanty rain during 1976 kharif season;
severe drought situation in 197980 leading to sharp drop in foodgrains production and
cornering of large quantities of market arrivals by private traders.
Short-fall/unimpressive growth in foodgrains production during 197980, 198182 and
198283; drought during the kharif season of 198283; self-imposed limits on open
market purchases by government; inadequate spread of public distribution system;
limited food imports due to difficult foreign exchange situation; depletion of buffer stock;
and high support prices
Short-fall/unimpressive growth in foodgrains production during 198485, 198586,
198687 and 198788; higher support prices; drought situation in 198788; and low
foodgrains procurement in 198889 despite record production
Short-fall/unimpressive growth in foodgrains production during 198990, 199091,
199192, 199394, 199596, and 199798; large government procurement at high
support prices; large increases in the issue price of foodgrains; more export of wheat
and rice; and increase in speculative hoarding by private traders due to withdrawal of
monitoring of stock limits under Essential Commodities Act and RBI's decision to exempt
almost all commodities from selective credit controls effective from 21 October 1996
Short-fall/unimpressive growth in foodgrains production during 200405 and 200506;
higher aggregate demand; and government's failure to procure adequate quantities of
wheat
Supply-side bottlenecks; large increase in minimum support prices; inadequate sale of
rice under open market sales window of government; inflationary expectations due to
unfavourable climatic condition; increasing demand for food due to an increase in
income, increase in cost of production; and high cost of imports and higher food exports.

Source: Economic & Political Weekly (Analysis and Editorials published in various issues); Nair and Eapen (2011 and 2012); Nair (2013); Patnaik (2007) and the authors analysis of year-on-year
growth of production of various food commodities.
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and 199394, against 1.33% and 0.59% recorded, respectively


during the periods 199394 to 19992000 and 19992000 to
201011 (Himanshu 2005 and Usami 2012).18 Prior to the maturing stage of the Green Revolution (1964 to 1980) as well, the
growth of real agricultural wages was slow as evident from the
analysis presented in Chavan and Bedamatta (2006).19
4.3 Role of Minimum Support Prices: One of the key reasons
attributed to the spikes in food prices witnessed during the
post-ERs period are the hefty increases in minimum support
prices (MSP) of foodgrains (rice and wheat) (Balakrishnan 2000;
Chand 2005; Dev and Rao 2010). The procurement of foodgrains
by the government at higher MSP can cause high food inflation
due to three reasons (GoI 2000; Nair and Eapen 2011). First, it
sets a higher benchmark for market prices of foodgrains
thereby feeding into food price inflation expectations. Second,
it necessitates a hike in the prices of foodgrains supplied by the
government through the public distribution system (PDS) and
Open Market Sale Scheme (OMSS).20 Third, it edges out private
trade thereby reducing the quantum of foodgrains available for
consumption by ordinary consumers. The influence of a hike in
MSP on foodgrain prices is evident from Figures 4 and 5 (p 55)
which show that generally, the rate of annual increases in MSP
of rice and wheat and their respective annual inflation rates move
in the same direction, indicating that a higher increase in the
MSP translates into an increase in the market price of foodgrains
and vice versa. Long-term trends reveal that MSP for rice and
wheat in nominal terms recorded much higher increases during the post-ER s period than in the 1980s (Figure 6, p 55).21
Interestingly, however, cereals experienced lower average
inflation rates during the post-ER s period compared to the
maturing stage of the Green Revolution (Table 6). We provide
the following explanation for this counter-intuitive finding.
Table 6: Average WPI Inflation Rate (Base: 200405) of Diesel and
Subgroups of Food Articles and Food Products under Various Agrarian
Policy Regimes
Items

Food articles
Foodgrains*
Cereals
Pulses
Fruits and vegetables
Milk
Eggs, meat and fish
Condiments and spices*
Fuel (diesel)
Food products
Dairy products
Grain mill products
Sugar, khandsari and gur
Edible oils
Oil cake
Tea and coffee proccessing**
Fuel (diesel)

Pre-Green
Revolution
Period

Initial Stage
of Green
Revolution
Period

3.69
8.34
6.62
4.09
7.42

5.10
5.40
7.54
6.87
5.07
8.64
4.34
10.57

9.89
9.94
9.00
9.81
10.28
9.59
18.89
8.39

7.32
7.36
8.44
7.68
8.04
9.64
6.14
9.82

8.96
6.17
11.39
11.14
10.49

15.81

10.21
9.43
2.32
9.64
8.32
6.66
7.87

6.58
5.21
7.16
4.43
8.84
5.69
9.79

(%)

Maturing Stage Post-Economic


of Green
Reforms Period
Revolution
Period

* Prior to April 1963 foodgrains and condiments and spices classification are not available.
** Tea and coffee processing classification is available only from April 1982.
Source (Basic Data): As in Figure 1.

54

Overall, though, the MSP increased substantially during the


post-ERs period, a closer look at the annual increases in MSP
reveals that between the five-year period from 200102 to
200506 in case of wheat and from 200203 to 200607 in
case of rice the increase in MSP was moderate (circled portion
in Figures 4 and 5). The annual increases in MSP during these
periods ranged from 1.56% to 1.64% for wheat and 1.75% to
3.77% for rice.22 Both prior to and after these periods in the
post-ERs period, annual Table 7: Standard Deviation of Year-on-Year
increases in MSP were Growth Rates of Food Production
and Agricultural GDP
(%)
significantly larger. For
195152 196768 198081 199293
instance, from 199394
to
to
to
to
196465 197980 199192 201213
to 200102 (200001
8.40 12.52 9.51 8.45
in case of wheat) the Foodgrains
Total cereals
7.75 11.90 9.36 8.24
annual increases in MSP
Rice
10.20 14.80 13.43 9.38
ranged from 3.92% to
Wheat
12.74 14.91 8.10 6.45
14.81%, and 2.86% to
Pulses
14.66 19.27 13.94 13.74
25.39% for rice and Nine oilseeds 10.32 18.91 18.00 20.68
wheat, respectively. In- Sugar cane
16.51 13.04 8.37 11.33
terestingly, during this Tea
3.49 4.34 4.21
phase of moderate in- Coffee
24.06 46.16 10.35

2.19 0.96
creases in MSP, inflation Milk

3.31 4.33
rates of both rice and Egg

5.65 2.69
wheat were ruling low Fish (total)
with a period average of Agricultural GDP 5.05 9.05 6.49 4.65
Source (Basic Data): As in Tables 1 and 2.
2.1% and 1.9%, respectively (circled portion in Figures 4 and 5). Incidentally, it is this
fairly long phase of significantly low rice and wheat inflation
rates which has pulled down the average cereal inflation rate
after the economic reforms.
Apart from the modest increases in MSP, which might have
reduced the expectation of an all pervasive increase in food
prices, the other reason for low rice and wheat price inflation
between 200102 and 200607 appears to be the reduction
followed by no revision in Central Issue Price (CIP) of rice and
wheat since July 2000 for below poverty line (BPL) families,
and since July 200102 for above poverty line (APL) families
(Tables 10 and 11, p 57). The combined effect of the marginal
increases in MSP, and reduction and no upward revision in the
CIP are the following: (a) starting from 200001, the governments food subsidy bill increased substantially both in
absolute terms and as a percentage of GDP (at market prices)
(Figure 7, p 56), (b) the offtake of rice and wheat both by BPL
and APL beneficiaries under targeted public distribution system
(TPDS) increased between 2001 and 2007 (Table 12, p 58).23
Thus, it is evident that the moderate hikes in procurement prices
during 200102 to 200607 coupled with reduction in and freeze
on PDS prices resulted in a fall in wholesale price of cereals and
increase in offtake of cereals from PDS and open market.
Although increased offtake led to steep falls in foodgrains
buffer stocks bet ween 200203 and 200607 (Figure 8, p 56),
consumers paid lower prices for cereals thanks to modest
increases in MSP and downward/no revision in CIP.24
In sharp contrast to the situation during 2001 to 2007, between
the period 199394 and 19992000 (200001 in case of wheat)
annual increases in MSP were substantial (Figures 4 and 5).
august 1, 2015

vol l no 31

EPW

Economic & Political Weekly

SPECIAL ARTICLE
Figure 4: Movements in Year-on-Year Growth of MSP and Inflation Rate of Rice

(%) during this period (Figure 8, p 56)

45

197576
197677
197778
197879
197980
198081
198182
198283
198384
198485
198586
198687
198788
198889
198990
199091
199192
199293
199394
199495
199596
199697
199798
199899
19992000
200001
200102
200203
200304
200405
200506
200607
200708
200809
200910
201011
201112
201213

197677
197778
197879
197980
198081
198182
198283
198384
198485
198586
198687
198788
198889
198990
199091
199192
199293
199394
199495
199596
199697
199798
199899
19992000
200001
200102
200203
200304
200405
200506
200607
200708
200809
200910
201011
201112
201213

197677
197778
197879
197980
198081
198182
198283
198384
198485
198586
198687
198788
198889
198990
199091
199192
199293
199394
199495
199596
199697
199798
199899
19992000
200001
200102
200203
200304
200405
200506
200607
200708
200809
200910
201011
201112
201213

thanks to high levels of procurement, it has not translated into


lower cereal prices for most years
35
MSP
due to (a) procurement at higher
MSP, and (b) increase in CIP at fre25
quent intervals. In fact, the upward
Inflation Rate
revision of CIP has accelerated the
15
rate of accretion to public stocks of
foodgrains, particularly in case of
5
wheat during 19972001, by way of
reducing the offtake of grains under
the PDS (Figure 8 and Table 12).25
-5
As regards the other important
phase (2007 to 2012)26 of high MSP
-15
prevailing during the post-ERs period
to overcome the situation of falling
foodgrain stock from 200203 to
Source: HSIE (RBI) (for MSP) and CSO (for Inflation)
200607 and to incentivise farmers
Figure 5: Movements in Year-on-Year Growth of MSP and Inflation Rate of Wheat
(%) to increase grain production and
40
productivity (GoI 2012) a sharp
35
hike in MSP of rice and wheat
was effected from 200708 and
MSP
30
200607, respectively.27 As a result,
25
cereal prices rose despite rising
20
grain buffer stock.28 However,
since CIP remained unrevised dur15
Inflation Rate
ing this period thereby widening
10
the gap between CIP and the mar5
ket price of grains, the offtake of
foodgrains under TPDS, even by
0
APL beneficiaries, was high.
-5
Finally, considering the matur-10
ing stage of GR, though in absolute
terms the nominal MSP of rice and
wheat was lower during this period
than the post-ERs period, a major
Source: As in Figure 4.
shift in the level of nominal MSP
Figure 6: Minimum Support Price of Wheat and Rice
(Rupees per quintal)
occurred
since 198889 (circled
1400
portion in Figure 6). The average
1200
MSP offered to rice increased from
Rs 131 during 198081 to 198788 to
1000
Rs 210 during 198889 to 199293,
Wheat
800
a huge increase of 60%. The MSP of
wheat also increased to a similar
600
magnitude from Rs 154 to Rs 247
400
Rice
during the same period. More
200
importantly, the CIP of both rice
and wheat was subject to upward
0
revision throughout the maturing
state of Green Revolution (Tables 10
and 11). Thus, it turns out that the
Source: HSIE (RBI).
high level of MSP in the later part
Notably, there were frequent upward adjustments in the CIP of the maturing stage of the Green Revolution and upward
consequent to the increases in the MSP (Tables 10 and 11). adjustments in the PDS issue price at regular intervals have put
Though the food stock with the government was healthy pressure on cereal prices.
Economic & Political Weekly

EPW

august 1, 2015

vol l no 31

55

SPECIAL ARTICLE

might have contributed to lower


food inflation during the post-ERs
80,000
period by enhancing the govern1.00
ments ability to stabilise prices
70,000
As % of GDP
through sale of foodgrains to the
60,000
0.80
open market.30 Another closely re50,000
lated factor could be the improve0.60
40,000
ment in coverage and effectiveness of the PDS overtime. Though
30,000
0.40
In rupees crore
the PDS played an important role
20,000
since independence in making
0.20
10,000
available foodgrains to consumers
0.00
0
at reasonable price, it remained
predominantly urban and ineffective in reaching the poor until the
Source: Radhakrishna and Subbarao (1997) and Sharma (2012) (For Subsidy); HSIE, RBI (For GDP).
mid-1980s (Howes and Jha 1992;
Figure 8: Yearly Movements in Cereal (Wheat & Rice) Stocks (in Million Tonnes) and WPI Inflation Rate of
Nawani 1994). However, starting
Cereals (Base: 200405) (197273 to 201213)
from the early 1990s, serious pol70
50
icy interventions such as re60
40
vamped PDS and TPDS were made
Cereal inflation rate (%)
to ensure the effective reach of
50
30
Cereal stocks
in million tonne
PDS to the traditionally deficit ar40
20
eas and vulnerable people (GoI
2005; Nawani 1994). Recent stud30
10
ies have found that PDS has im20
0
proved overtime in terms of coverage and function (Khera 2011;
10
-10
Rahman 2014).
0
-20
4.5 Import Liberalisation: It seems
that liberalisation of agricultural
imports and less stringent foreign
Source: CSO (for Inflation) and HSIE (RBI) (for cereal stocks).
exchange constraintsboth an
Figure 9: Yearly Movements in Index Number (Base: 19992000) of Food Imports (Quantum) and
outcome of opening up of the InFigure 9: Yearly Movements in Index Number (Base: 1999-00) of Food Imports (Quantum) and
WPI Food Inflation Rate (Base: 200405) (196061 to 200910)
dian economy since 1991have
WPI Food Inflation Rate (Base:
(
2004- 05)) (1960-61
(
to 2009- 10))
250
60
enabled India to import more
50
quantities of various food items to
200
Food Products Inflation
40
meet food requirements at times
Index No of Food Import
Food Articles Inflation
of domestic shortage and escalat30
150
ing domestic food prices, thereby
20
helping to reduce food inflation
100
10
during the post-ERs period. This is
0
50
evident from Figure 9, Figures 10
-10
to 12 (p 58), which reveal the fol0
-20
lowing trends.
(a) Since 196061, the quantum of
aggregate food imports responded
Source: HSIE RBI (For Import Index) and CSO (For Inflation).
mostly to food price shocks until
4.4 Role of Buffer Stocks and PDS: As pointed out by Gokarn 197576, followed by a phase of substantially lower food
(2011), a credible level of food stocks can dampen price volatil- imports covering a 10-year period from 197677 to 198687
ity, possibly by keeping a check on speculative tendencies in (Figure 9). Food imports started responding to food price
the market. Figure 8 reveals that historically, by and large, ce- spikes again from 198788 to 199596 though in a subdued
real inflation rates and cereal stock levels have behaved simi- and erratic fashion. And from 199697 onwards food imports
larly.29 Barring the period from 2002 to 2007, foodgrains (rice have responded overwhelmingly to domestic food price escaand wheat) buffer stock with the government was significantly lation. Thus, Indias aggregate food imports remained at a
higher in the post-ERs period compared with other agrarian high level and were adequately responsive to food price escalapolicy regimes (Figure 8). As such, the higher food stocks tions before the mid-1970s and after the mid-1990s. In the
Figure 7: Food Subsidy in India

1.20

56

200607

200809
200910

200203

200405

200001

199697

199899

199293

199495

199091

198889

198687

198283

198485

197879

198081

197475

197677

197273

197071

196869

196667

196465

196263

196061

197273
197374
197475
197576
197677
197778
197879
197980
198081
198182
198283
198384
198485
198586
198687
198788
198889
198990
199091
199192
199293
199394
199495
199596
199697
199798
199899
19992000
200001
200102
200203
200304
200405
200506
200607
200708
200809
200910
201011
201112
201213

Percentage

Million tonne

197475
197576
197677
197778
197879
197980
198081
198182
198283
198384
198485
198586
198687
198788
198889
198990
199091
199192
199293
199394
199495
199596
199697
199798
199899
19992000
200001
200102
200203
200304
200405
200506
200607
200708
200809
200910
201011
201112
201213

Rupees crore

Percentage

90,000

august 1, 2015

vol l no 31

EPW

Economic & Political Weekly

SPECIAL ARTICLE

interim period (197677 to 199596), Indias food imports were


relatively low.31
(b) A commodity-wise analysis of trends in food imports32
vis--vis food inflation since 196061 reveals that prior to the
opening up of the Indian economy only the import of cereals,
milk and milk products have responded adequately to the
inflationary pressures witnessed in these commodities.33 The
import of other food commodities, though responded positively to price escalation, was very limited during the same
period (Figures 10 to 12, for example).34 On the other hand,
after the opening up of the Indian economy, import of several
Table 8: Trends in Percentage Composition of MPCE (at Current Prices) on
Groups of Food Items in Rural India (Share in Total Consumer Expenditure
on Food)
1967
68

1972
73

1977
78

1983

Cereal

58.69 55.72 50.96 49.25


(-2.97) (-4.76) (-1.71)
Gram
1.08 0.78 0.65 0.39
(-0.31) (-0.12) (-0.26)
Cereal
1.08 0.75 0.52 0.28
substitutes
(-0.34) (-0.23) (-0.23)
Pulses and pulse 5.69 5.88 5.93 5.37
products
(0.19) (0.06) (-0.56)
Milk and milk 9.56 10.01 11.93 11.46
products
(0.45) (1.92) (-0.47)
Sugar
5.07 5.16 4.11 4.29
(0.09) (-1.06) (0.18)
Edible oil
3.76 4.82 5.55 6.14
(1.06) (0.73) (0.59)
Egg, fish and 3.10 3.39 4.15 4.61
meat
(0.29) (0.76) (0.46)
Vegetables
4.22 4.94 5.87 7.19
(0.72) (0.92) (1.32)
Fruits and nuts 1.16 1.40 1.74 2.12
(0.24) (0.34) (0.38)

1987
88

1993
94

1999
2000

2004 2011
05
12

40.99 38.30 37.31 32.72 24.62


(-8.25) (-2.69) (-0.99) (-4.59) (-8.10)
0.38 0.28 0.22 0.24 0.35
(-0.02) (-0.10) (-0.06) (0.02) (0.11)
0.21 0.17 0.12 0.13 0.14
(-0.08) (-0.04) (-0.04) (0.00) (0.01)
6.22 6.02 6.41 5.59 6.39
(0.85) (-0.20) (0.39) (-0.82) (0.80)
13.52 15.02 14.74 15.38 18.67
(2.06) (1.50) (-0.28) (0.64) (3.29)
4.47 4.84 4.01 4.31
3.8
(0.19) (0.36) (-0.83) (0.30) (-0.51)
7.82 7.03 6.29 8.36 7.75
(1.67) (-0.79) (-0.74) (2.07) (-0.61)
5.07 5.29 5.59 6.05 7.33
(0.46) (0.22) (0.30) (0.46) (1.28)
8.16 9.56 10.38 11.08 9.95
(0.97) (1.40) (0.82) (0.70) (-1.13)
2.55 2.76 2.89 3.39 3.08
(0.43) (0.21) (0.14) (0.49) (-0.31)

Figures in the brackets are percentage points change over the years.
Percentage shares of individual food items do not add to 100 since salt and spices and
beverages etc are excluded. MPCE = Monthly per capita expenditure.
Source (Basic Data): NSSO (For 196768 to 1983); Household Consumer Expenditure in
India, 200708; NSS 64th Round (Report No 530) (For 198788 to 200405); and Key
Indicators of Household Consumer Expenditure in India, 201112; NSS 68th Round.

Table 9: Trends in Percentage Composition of MPCE (at Current Prices) on


Groups of Food Items in Urban India (Share in Total Consumer Expenditure
on Food)
1967
68

1972
73

1977
78

Cereal

1983

38.06 36.17 34.09 32.85


(-1.90) (-2.08) (-1.25)
Gram
0.47 0.49 0.42 0.32
(0.02) (-0.07) (-0.10)
Cereal
0.23 0.20 0.17 0.13
substitutes
(-0.04) (-0.02) (-0.04)
Pulses and
5.63 5.29 5.95 5.46
pulse products
(-0.34) (0.66) (-0.49)
Milk and milk 14.12 14.47 15.88 15.62
products
(0.35) (1.41) (-0.26)
Sugar
5.40 5.58 4.40 4.16
(0.18) (-1.18) (-0.25)
Edible oil
6.14 7.52 7.73 8.19
(1.38) (0.22) (0.45)
Egg, fish
4.86 5.07 5.77 6.10
and meat
(0.21) (0.71) (0.33)
Vegetables
6.24 6.78 7.33 8.43
(0.55) (0.55) (1.09)
Fruits and nuts 2.75 3.11 3.26 3.57
(0.36) (0.15) (0.31)

1987
88

1993
94

1999
2000

26.46 25.69 25.70 23.65 19.02


(-6.39) (-0.77) (0.01) (-2.04) (-4.63)
0.29 0.32 0.23 0.25 0.32
(-0.03) (0.03) (-0.09) (0.01) (0.07)
0.12 0.12 0.09 0.12 0.14
(-0.01) (0.00) (-0.03) (0.03) (0.02)
6.04 5.55 5.90 5.03 5.59
(0.58) (-0.49) (0.35) (-0.87) (0.56)
17.06 17.94 18.05 18.62 20.2
(1.44) (0.88) (0.11) (0.57) (1.58)
4.19 4.35 3.41 3.55
3.0
(0.04) (0.16) (-0.95) (0.14) (-0.55)
9.47 8.03 6.53 8.13 6.89
(1.28) (-1.44) (-1.50) (1.60) (-1.24)
6.33 6.19 6.52 6.36 7.25
(0.23) (-0.14) (0.33) (-0.16) (0.89)
9.39 9.99 10.69 10.47 8.82
(0.96) (0.60) (0.70) (-0.22) (-1.65)
4.49 4.87 5.03 5.29 4.55
(0.92) (0.39) (0.16) (0.25) (-0.74)

MPCE = Monthly per capita expenditure.


Source: As in Table 8.
Economic & Political Weekly

EPW

2004 2011
05
12

august 1, 2015

vol l no 31

agricultural products, Table 10: Central Issue Price (CIP) of Rice


(Rs/quintal)
namely, pulses, vegetaDate of Revision
Common
Fine
Superfine
bles, fruits, spices, milk 1982 (October)
188
200
215
products, edible oils, 1984 (January)
208
220
235
oil cake and sugar have 1985 (October)
217
229
244
increased significantly 1986 (February)
231
243
253
in response to the price 1986 (October)
239
251
266
239
264
279
shocks that occurred in 1987 (October)
244
304
325
these products. In par- 1989 (January)
289
349
370
ticular, the increase in 1990 (June)
1991 (December)
377
437
458
imports of many of these
1993 (January)
437
497
518
products was pheno1994 (February)
537
617
648
menal since the early
Above Poverty
Below Poverty
2000s and this may be
Line (APL)
Line (BPL)
Common Grade A Common/Grade A
the outcome of removal
350
of quantitative restric- 1997 (December) 550 700
1999 (January)
700
905
350
tions on farm imports
2000 (April)
1,135 1,180
590
starting from 2001.
2000 (July)
1,087 1,130
565
The implication of this 2001 (July)
795
830
565
food import pattern 2002 (April)
695
730
565
from the point of view 2002 (July)
795
830
565
of understanding food The classification of beneficiary category and grain variety
changed since the introduction of TPDS in 1997.
price behaviour is that has
Source: Economic Survey (Various Issues) and DAC,
the positive import res- MoA, GoI.
ponse to food price esca- Table 11: Central Issue Price of Wheat
lation witnessed prior to (Rs/quintal)
Date of Revision
Central Issue Price
197576 was restricted
1982 (August)
160
NA
only to cereals, milk and 1983 (April)
172
NA
milk products. In con- 1986 (February)
190
NA
trast, the highly favour- 1987 (May)
195
NA
204
NA
able import response to 1988 (March)
234
NA
food price escalation 1990 (May)
280
NA
recorded since the mid- 1991 (December)
1993 (January)
330
NA
1990s was broad-based,
1994 (February)
402
NA
involving several agriAPL
BPL
cultural commodities.
1997 (June)
450
250
Farm imports were 1999 (January)
650
250
682
250
liberalised through three 1999 (April)
900
450
key measures, namely, 2000 (April)
830
415
removal of quantitative 2000 (July)
2001 (July)
610
415
restrictions (from 2001),
2002 (April)
510
415
lowering of tariff barri2002 (July)
610
415
ers and increasing the NA: Not Applicable.
role of private traders Source: As in Table 10.
in agricultural imports by way of decanalisation of imports.35
While these measures have enabled import of large quantities
of food, decanalisation of imports might have produced an
additional benefit in terms of adequate response of private
sector imports to price rise against the pre-1990s situation
of only government controlled imports via state trading
bodies/enterprises.
4.6 Cost of Production: One major factor determining food
price inflation is the cost of production (CoP) in agriculture. In
absolute terms, the trends in nominal C2 CoP36 in agriculture
represented by two major food crops, namely, rice and wheat
57

SPECIAL ARTICLE
Figure 10: Yearly Movements in Cereal Imports (in Tonnes) and WPI Inflation Rate of Cereals
(Base: 200405) (196162 to 200910)
50

1,20,00,000

Inflation rate

1,00,00,000

Year

40

60,00,000

20

Import

40,00,000

10

20,00,000

200910

200708

200506

200102

200304

199798

19992000

199596

199192

199394

198788

198990

198586

198182

198384

197778

197980

197576

197172

197374

196970

196364

196768

-20
196566

-10

196162

0
-20,00,000

Percentage

30

80,00,000
Tonne

Table 12: Offtake under the Public


Distribution System/TPDS
(in Million Tonnes)

Source: Food and Agriculture Organization STAT (FAOSTAT) (for imports) and CSO (for inflation).

Figure 11: Yearly Movements in Pulses Imports (in Tonnes) and WPI Inflation Rate of Pulses
(Base: 200405) (196162 to 200910)
60

40,00,000

50

Import

Inflation rate

35,00,000

40
30,00,000

30

25,00,000

20

20,00,000

10
0

15,00,000

-10
10,00,000

-20

Source: As in Figure 10.

Figure 12: Yearly Movements in Edible Oils Imports (in Tonnes) and WPI
Inflation Rate of Edile Oils (Base: 200405) (196162 to 200910)
90,00,000
80,00,000
70,00,000
60,00,000
50,00,000
40,00,000
30,00,000
20,00,000
10,00,000
0

Import
Import

60
50
40
30
20
10
0
-10
-20
-30

196162
196364
196566
196768
196970
197172
197374
197576
197778
197980
198182
198384
198586
198788
198990
199192
199394
199596
199798
19992000
200102
200304
200506
200708
200910

Inflation rate rate


Inflation

200910

200708

200304

200506

200102

19992000

199798

199596

199192

199394

198990

198788

198586

198182

198384

197980

197778

197576

197374

197172

196970

196768

196566

-40
196162

-30

0
196364

5,00,000

Rice

199091
199192
199293
199394
199495
199596
199697
199798

7.87
10.17
9.55
8.87
8.03
9.75
11.14
9.9

Wheat

NA
NA
NA
NA
NA
NA
NA
NA

BPL+AAY APL

199899
19992000
200001
200102
200203
200304
200405
200506
200607
200708
200809
200910
201011
201112
201213

3.35
3.98
5.92
6.74
9.28
11.41
13.24
14.40
15.30
16.66
16.36
16.88
17.97
17.91
18.20

7.27
7.21
1.94
1.30
1.17
1.86
3.23
4.66
5.82
5.79
5.71
6.54
6.87
6.41
7.03

7.08
8.83
7.47
5.91
4.83
5.81
8.52
7.08

NA
NA
NA
NA
NA
NA
NA
NA

BPL+AAY APL

2.62
3.02
3.76
4.99
7.98
8.56
9.69
8.69
7.60
7.91
8.82
9.47
9.13
9.10
9.78

5.20
2.60
0.17
0.53
1.64
2.11
3.20
3.36
2.65
2.93
3.71
9.53
9.75
9.68
9.87

NA: Not Applicable; As in Table 10.


Source: Economic Survey (various issues) and
IndiaStat.Com (from 199899).

2010).37 As regards fuel prices, the


average diesel price inflation witnessed during the post-ERs period
was higher than the maturing stage of the Green Revolution
(Table 6). However, interestingly, as indicated earlier, the real
agricultural wages increased at a much slower rate during the
post-ERs period compared to maturing stage of the Green Revolution. These trends suggest that the higher increase in CoP in
Indian agriculture after the economic reforms period was not
attributed to higher increases in cost of farm labour.38 Thus, the
relatively low food price inflation in the post-ERs period despite
the higher overall cost of food production was due to an overwhelming response of other factors discussed above.

Source: As in Figure 10.

5 Summary and Policy Conclusions

Figure 13: C2 Cost of Production of Rice and Wheat (Rs/quintal)


600
500
Rice
Rice
400
300
200

Wheat
Wheat

198182
198283
198384
198485
198586
198687
198788
198889
198990
199091
199192
199293
199495
199596
199697
199798
199899
19992000
200001
200102
200203
200304
200405
200506
200607

100

Source: Dev and Rao (2010).

reveals that post-ERs period saw faster increases in CoP than the
maturing stage of the Green Revolution (Figure 13). A similar
trend was recorded in the growth rate of real CoP (Dev and Rao
58

In this paper, we have analysed the trends in food price inflation


in India in relation to the performance of the agricultural sector
during the pre- and post-ERs periods. It is revealed that, on average, food price inflation was lower during the post-ERs as a
whole compared to the initial and maturing stages of the Green
Revolution. This is despite the decline in the agricultural sector
during the post-ERs period and the persistently high food inflation witnessed in recent years which, among others, was caused
due to supply-side constraints, growing demand for protein-rich
food items and rising cost of food production (for details see
Basu 2011; Chand 2010; Nair and Eapen 2012; Nair 2013). Surprisingly, the maturing stage of the Green Revolution, which is
considered a turning point in Indias agricultural development
(Bhalla and Singh 2009), has not turned out to be price friendly,
august 1, 2015

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Economic & Political Weekly

SPECIAL ARTICLE

with both food articles and food products inflation rates ruling
high on average during this phase. In our view, the following
factors explain these results.
First, agricultural growth was more stable during the postERs period than the initial and maturing stages of the Green
Revolution. Second, there was a major shift in food consumption towards high-value food commodities during the maturing
stage of the Green Revolution. Third, the moderate increases
in MSP from 2001 to 2007 significantly reduced cereal prices
and inflationary expectations during this period thereby helping achieve lower average food inflation in the post-ERs period. Fourth, the downward revision in and freeze on CIP since
the early 2000s resulted in higher offtake of foodgrains from
PDS at highly subsidised prices. Fifth, the foodgrains buffer
stock situation improved significantly in the post-ERs period
thereby strengthening the governments capacity to release
grains in the open market to check price rise. Fifth, the coverage and performance of PDS has improved over the years. Sixth,
thanks to the opening up of foreign trade, and a comfortable
foreign exchange reserves position since 1992, India succeeded
in importing adequate food to meet domestic shortages and to
Notes
1 Post-economic reforms period refers to the
period after 1991.
2 Following literature, we exclude 196566 and
196667 as they experienced two unprecedented droughts and a war (IndiaPakistan).
3 As the economic reform programme was introduced from July 1991, its effect on the economy
could not have been felt prior to 199293
(Panagariya 2004).
4 For details of this strategy, see Bhalla (2007);
Swaminathan (2012).
5 It is be noted that output performance of a few
food commodities, namely, milk, egg, fish and
meat included in our analysis are not linked to
the Green Revolution strategy as it was guided
by sector-specific policy interventions such as
the Operation Flood programme launched in
1970 to boost milk production and Blue Revolution efforts to modernise Indian capture
fisheries from the mid-1950s onward.
6 During 198081 to 199091, the yield growth
accounted for 80.25% of growth of output,
against the figures of 58.45% and 38.41% recorded during 194950 to 196465 and 1967
68 to 198081 respectively (Bhalla 2007).
7 However, the changes introduced in Indias
macroeconomic, industrial and trade policies
as part of economic liberalisation have influenced the agrarian environment in varied
ways. For details see Landes and Gulati (2004).
8 For details about factors responsible for
agrarian slowdown, see Bhalla (2007); Chand,
Raju and Pandey (2007); Landes and Gulati
(2004).
9 The underperformance of growth rate of agricultural GDP after the economic reforms is more
evident from the robust overall GDP growth rate
experienced during the same period.
10 The WPI available in various bases is converted
into a common (200405) base using linking
factor.
11 The data on food articles inflation rate is available only from 195455.
12 The complete data sets are available from the
authors upon request.
13 See footnote 12.
Economic & Political Weekly

EPW

august 1, 2015

shocks.39

control price
In contrast, the periods before economic liberalisation were constrained by a restricted trade regime, perennial foreign exchange shortages, and an unfavourable international community, all of which made it difficult to
exercise the import option liberally.
The policy implications of our findings are as follows: (a) it
seems that, in the long run, a combination of a liberal foreign
trade regime and stable, but not necessarily high, agricultural
growth and food output can be helpful to keep food inflation
under control;40 (b) along with the level of agricultural growth,
attention must be paid to the stability of growth (Chand 2010);
(c) moderate hikes in MSP and lower PDS price can have a softening effect on food prices, but at the cost of an enlarged food
subsidy bill; (d) a better level of buffer stock and increase in accessibility of the PDS can help stabilise food prices; (e) from an
inflation angle, the concerns about the deceleration of agricultural growth during the post-ERs period are unfounded; and
(f) the notion that economic (trade) liberalisation and the consequent strengthening of the foreign exchange reserve position
have led the government to be less focused on agricultural selfsufficiency since 1992 (Landes and Gulati 2004) has substance.

14 We measured policy regime-wise average food


inflation rate after taking into account the
spill-over effect of output shock occurring in
one policy regime on the price situation in
another regime. For details, see notes to
Tables 3 and 4. The conclusions remain the
same if average inflation rate is measured
without this adjustment.
15 After the economic reforms a similar shift in
food consumption pattern was experienced
between 2004 and 2012 (Tables 8 and 9). Also,
see Nair (2013).
16 Being drought year we exclude MPCE data for
200910. As the number of years is not uniform across the NSSO survey rounds, the percentage point change reported in Tables 8 and
9 are not strictly comparable.
17 Interestingly, the proportion of total food inflation contributed by protein foods increased
further after the economic reforms, while the
contribution from fruits and vegetables remained
the same. The trends emanating from Figure 3
largely confirm Gokarns (2011) finding that
over the years, protein foods and fruits and
vegetables emerged as the predominant contributor to food inflation in India.
18 See Table 1 in Himanshu (2005) and Table 1A in
Usami (2012) (for raw data).
19 In particular, see Table 6 in Chavan and Bedamatta (2006).
20 The price at which foodgrains are supplied under PDS is called central issue price (CIP). Under Open Market Sale Scheme (OMSS), the
government through the Food Corporation of
India (FCI) sells foodgrains at predetermined
prices in the open market to check the rise in
their market prices and to dispose part of surplus food stock with the government.
21 Similar trend was witnessed in the growth of
MSP in real terms (see Dev and Rao 2010). Several factors have contributed to the higher MSP
after the economic reforms. For details see Dev
and Rao 2010; Landes and Gulati (2004); Saini
and Kozicka (2014); Tripathi (2014).
22 This is the outcome of the policy of restraint in
announcing hike in the MSP followed by the
government during the first half of the last
decade with the goals of removing market
vol l no 31

23
24

25

26
27

28

29
30

31

32

33

distortions and restoring the role of private


trade in the grain market, thereby reducing
the pressure on government to procure more
foodgrains (GoI 2005: 2006).
The offtake under OMSS was also high during
most of the years in this period.
The other major factor contributing to easing
of buffer stock was the higher export of rice
and wheat permitted by the government at a
heavy discount price and lower wheat procurement in 200506 and 200607. For details, see
Nair and Eapen (2011; 2012).
The offtake declined due to reduced difference
between the PDS price and open market prices,
which induced a large section of APL beneficiaries to move out of the PDS, and due to
introduction of TPDS since 1997 (Chand 2005;
GoI 2002).
2006 to 2012 in case of wheat.
For a detailed account of circumstances leading to the sharp increase in MSP from these
periods, see Nair and Eapen (2011; 2012).
During 201011 and 201112 the prices of rice
and wheat remained low despite high MSP.
This was due to record output on the back of
good monsoon (GoI 2011; 2012).
See Gokarn (2011) for similar trends in 1990s
and 2000s.
In fact, long-term trends reveal that the offtake
of cereals from the central pool increased
significantly after the economic reforms compared to earlier periods.
The decline in the food imports during this period was contributed by the significant reduction witnessed in the cereals imports (Figure
10). Cereal imports declined due to attainment
of higher degree of foodgrain self-sufficiency
by India thanks to Green Revolution (Sathe
and Deshpande 2006).
Except milk and milk products, the import figures analysed in this paper consists only of raw
component. Milk imports contain both raw and
processed forms.
The better import response to inflation of
foodgrains, cereals, and milk is reflected in their
lower average inflation before the Green Revolution and during its initial stages (Table 6).

59

SPECIAL ARTICLE
34 Only the figures for selected commodities are
presented here. The figures for other commodities are available from the authors upon
request.
35 Decanalisation involves reduction of state
agencies monopoly rights over imports.
36 CoP includes actual paid out costs on purchased inputs plus imputed value of family labour, rental value of owned land and interest
on value of owned fixed capital assets (Dev and
Rao 2010).
37 CoP of rice in constant prices has grown by
1.46% during 199495 to 200607, while the
rate was -0.13% between 198182 and 199293.
The growth figures for wheat respectively, are
1.41% and -1.96%.
38 It is another matter that, due to various reasons, real farm wages increased sharply from
200708 thereby pushing up the food prices
in the recent times. For details, see Gulati
and Saini (2013) and Gulati, Jain and Satija
(2013).
39 This finding supports the proposition that low
food output and low food prices can coexist in
a liberal import policy environment (Dev and
Rao 2010).
40 For similar conclusion, see Ganesh-Kumar
and Parikh (1998). They, using Monte Carlo
simulations, show that a trade liberalisation
along with a suitable level of buffer stocks
can ensure food price stability. However, too
much dependence on liberal trade for meeting
countrys food requirement can at any time invite the risks of stoppage of trade owing to
politics of trade (Basu 2011) and of short-supply in the international market due to climatic
reasons. Hence, the need for maintaining some
reasonable level of self-sufficiency in food cannot be ignored.

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